According to Fitch Ratings, the EU’s approved ‘Fit for 55’ climate package will increase the carbon costs of EU producers and exporters, although this will likely be offset by increasing prices once the Carbon Border Adjustment Mechanism (CBAM) is levied from 2026/7. Even as companies may start purchasing certificates in advance.
The cost of emissions allowances has been on the rise since 2018 due to a decreasing number of free allowances on the market. The median price of one tonne (t) of carbon emission allowance was EUR80/t in 2020. This has risen to EUR90/t as of May 2023 while the maximum bid price has already exceeded EUR100/t. And estimates of USD150/t CO2 by 2030 and above USD200/t by 2050.
Click here to read more about CBAM that will initially apply to hard-to-abate polluting sectors such as cement, iron and steel (1.8t-2.8t of CO2 per tonne of crude steel), aluminium (1.9t CO2 per tonne of aluminium), certain fertilisers (1.6t CO2 per tonne of ammonia), electricity and hydrogen. The scope of attributable emissions includes only direct emissions for steel and aluminium but direct and indirect emissions for fertilisers. CCS projects costs and tax credits in the US are also to be considered.
Click at the image below for Fitch Ratings complete publication divided in to the following chapters:
Carbon Costs to Equalise
Carbon Price Will Continue Rising
Limited Impact in the Medium Term
Steel (Most Imports Are High-Carbon; Impact on European Producers)
Aluminium
Fertilisers (Nitrogen Fertilisers Most Exposed; European Fertiliser Prices to Rise; Low Carbon Capacity May Benefit; Uncertain Impact on Producers)
Changes in carbon costs might shift trade flows, with high-emitting exporters redirecting their exports to markets that lack carbon protection, while low-emitting exporters increasing their focus on the EU.
