EU Carbon Pricing Pushing Power And Gas Prices Higher


MARCH 23, 2021

By Paul Homewood

A good analysis by Timera of how EU carbon pricing policy has pushed up both natural gas and power prices this yearThis will naturally have a knock on effect here.


Carbon driving gas, power & LNG prices higher

European gas prices are driven by the competitive dynamics between gas and coal plants. As a result, the 80% surge in carbon EUA prices since Nov-20 is pulling European gas curves higher.  European power & Asian LNG prices are following suit, given they are anchored by TTF. (Gas Futures Market).

As carbon prices rise, coal fired plants become less competitive relative to CCGTs.  This supports gas fired generation, increasing gas demand and causing upward pressure on hub prices.

Switching levels, at which tranches of coal fired plants displace gas, act as a key driver of TTF pricing dynamics. But switching levels are a moving target. As coal & carbon prices have increased in 2021, switching levels are also marching higher.

In today’s article we look at the impact of rising carbon prices on switching levels and gas prices. We also set out why the sensitivity of TTF to rising carbon prices is increasing in 2021.

What is going on with carbon prices?

Carbon prices have risen at a blistering pace across the last year. EUA prices are up 190% from the Covid low (last Mar), 80% since last Nov and more than 30% this year, currently trading around 42 €/t.

Increasing prices are a market reaction to a concerted EU policy push to ramp up emissions reductions.  This was reflected in the increase in 2030 emissions target to 55% (vs 1990) in Q4 2020, as well as ongoing discussions to further ramp up reductions.

Part of the move higher in EUA prices has been driven by a surge in demand from non-compliance entities, loosely termed as ‘speculative buyers’.  This for example includes funds & financial institutions ‘front-running’ compliance demand (e.g. from power generators) in the anticipation of selling for a profit into rising prices across Phase 4 (2021-30).

There is also evidence of compliance buyers (e.g. European utilities) purchasing EUAs on a forward basis to try and lock in positive margins on coal & lignite assets.

Despite the current momentum behind carbon prices, a continuing surge is not a one-way bet.  Rising carbon prices are pushing forward generation margins on coal & lignite plants into negative territory, which will likely induce generators to unwind EUA hedges. There are also potential headwinds from UK buyers unwinding EUA positions once the UK ETS offers a viable alternative.

But whether rising or falling, carbon prices are having a substantial impact on European gas prices (and in turn power prices).


The increasing influence of carbon prices and lignite switching dynamics can be seen in Chart 2, which shows the TTF forward curve (i) at the start of Jan 2021 vs (ii) end of Feb 2021 vs (iii) last week.

Finally let’s consider European power prices. Carbon is acting in two ways to drive power prices higher. Gas, coal & lignite plants are directly passing through EUA costs when setting marginal power prices.  But with CCGTs dominating power price setting across Europe, the impact of carbon on gas prices is also an increasingly important secondary factor pushing power prices higher.

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March 24, 2021 6:29 am

Yes, any reduction in the communization of the external costs of a product, tends to raise it’s price, and has “knock on” effects. Otay by me.

In the US, we have a pol party that champions “substitution” as a way to reduce social spending. Seems like they would be cool with extending that idea from the poorest of us, to the rest, with anyone spewing less than their /capita share of carbon benefitting…

Last edited 1 year ago by bigoilbob
Reply to  bigoilbob
March 24, 2021 6:40 am

You really are an elitist putz.

Reply to  2hotel9
March 24, 2021 6:42 am

First response, a fact free name call. QED….

Reply to  bigoilbob
March 24, 2021 6:44 am

Fact free, that is you in a nutshell, boob.

Reply to  2hotel9
March 24, 2021 1:17 pm

And definitely an elitist putz.

In his own greasy little mind, anyway.

Facts are far different from what is in that oily, lifeless cesspool. !

Reply to  bigoilbob
March 24, 2021 5:01 pm

You QEDed yourself as a marxist

Reply to  bigoilbob
March 24, 2021 7:53 am

Thanks for this giggle BOB.
I had a vision of you holding your breath like kids do so you could reduce your CO2 output.

(I shouldn’t have to say this, but since I am addressing you BOB, what I wrote above is not a recommendation that you actually do start holding your breath)

Tom Abbott
Reply to  bigoilbob
March 25, 2021 6:31 am

“spewing less than their /capita share of carbon benefitting”

The subject is carbon dioxide, not carbon.

Reply to  Tom Abbott
March 25, 2021 6:40 am

Pretty Cliffie Claviney. Even for you.

Got a substantive objection to my post? Anyone? Anyone?….

Reply to  bigoilbob
March 26, 2021 4:13 am

We already did, now we are into the heaping derision&scorn phase. You make it so easy.

Last edited 1 year ago by 2hotel9
Hurricane Willy
Reply to  bigoilbob
March 25, 2021 8:11 am

The IPCC claim in their first report 1990, that CO2 is a dangerous greenhouse gas because it absorbs and emits IR @ 15µm.  According to Wien’s displacement law 15µm has corresponding temperature of -80° C.  The troposphere, that’s the part of the atmosphere that we live in, is defined by molecules with a temperature of -60° C and above. Emissions of IR @ 15µm from CO2, cannot heat any molecules in the troposphere. 

Obtaining money by deception is fraud. Carbon markets are a criminal enterprise.

Reply to  Hurricane Willy
March 25, 2021 8:20 am

According to Wien’s displacement law”

You are unwittingly validating bigoilbob’s law of fallacious propagation.

Note that Wien’s Law only helps to determine at what wavelength the radiation of a blackbody peaks at. To determine the total energy emitted from the blackbody, the Stefan-Boltzmann law must be used.”

Hurricane Willy
Reply to  bigoilbob
March 25, 2021 8:39 am

The peak is the maximum, as in, the hottest it gets. I hope that clears up your confusion.

Reply to  Hurricane Willy
March 25, 2021 9:01 am

“The peak is the maximum”

As true as it is irrelevant. Have you heard of a fancy concept known as “area under the curve”. No matter. Think I’ll go with the actual physics here, as recounted by an actual expert.

But feel free to link us to ANY superterranean source that spouts this hardy denier perennial. Or for that matter, even any of the Dan Kahan System 2 “experts” who initiate posts here.

Hurricane Willy
Reply to  bigoilbob
March 25, 2021 9:05 am

Area under the curve” as in, not the peak.

I suspected you were going to struggle with it.

Last edited 1 year ago by Hurricane Willy
Reply to  Hurricane Willy
March 25, 2021 9:29 am

So, no source to back up your irrelevant blatherings. Even amongst the WUWT poster initiators.

Predictable. Never change, man….

Hurricane Willy
Reply to  bigoilbob
March 25, 2021 9:39 am

Try any English dictionary. Take it slow to begin with.

Reply to  bigoilbob
March 26, 2021 4:19 am

You cut&paste blather undermines your position, please keep doing it.

Reply to  bigoilbob
March 25, 2021 6:10 pm

bob – you seem to be a total economic illiterate. Your understanding of pricing, supply, and demand are indefensible and ignorant of modern economic theory (not the theory of Marxism – which murder hundreds of millions of people and leaves the most people in the most poverty and pollution)

Pamela Matlack-Klein
March 24, 2021 6:33 am

Diesel is already up to 1,45/liter in Portugal. It has been climbing steadily up from 1,17/liter a few months ago. I can afford this but many cannot and they have my profound sympathy.

Reply to  Pamela Matlack-Klein
March 24, 2021 5:03 pm

I disagree; the many who can’t afford the high prices need to stop voting socialists in power

Reply to  Lrp
March 25, 2021 12:15 am

I can’t speak for Portugal, but in many countries there is now no choice for electors.

Dave Yaussy
March 24, 2021 6:35 am

Are EUAs European carbon credits?

Reply to  Dave Yaussy
March 24, 2021 11:14 am

For those of us not in the EU, what is an EUA. What is a TTF. What are these switching levels? And how is carbon driving the price of coal and natural gas? Lots of acronyms and short hand.

March 24, 2021 6:41 am

It is doing precisely what leftards wanted it to do, driving up prices.

Reply to  2hotel9
March 24, 2021 7:02 am

Or reducing CO2 emissions…

Bryan A
Reply to  griff
March 24, 2021 9:07 am

…By driving up prices

Carlo, Monte
Reply to  griff
March 24, 2021 10:12 am

How much of your payday are you willing to sacrifice for “carbon taxes”?


Reply to  Carlo, Monte
March 24, 2021 12:20 pm

Griff will take all the social benefit funds he can scrounge from the government.

Giving? not in his meme..

Far leftists like griff always “TAKE”

Reply to  Carlo, Monte
March 25, 2021 6:18 pm

Carlo: the issue with with such gall isn’t how much of “his” paycheck he is willing to sacrifice but how much of “our” paychecks he is willing to sacrifice. The classic Marxist tripe of making us all poorer, less literate, less healthy, etc at the feet of their political ideals says all that has to be said about Marxists.

If every fool’s price for being a fool was something “they” had to pay for, such vocal support for stupidity would cease. 🙂

M Courtney
Reply to  griff
March 24, 2021 10:14 am

Water, heating and electricity are not replaceable. Higher prices mean less money spent on other things. It does not mean less purchasing of the essentials.

It could mean less emissions if the money wasted is just stored in a bank vault and not used for something else.
It could mean less emissions in the host country if the businesses go elsewhere.

But generally speaking more expensive essentials is just a way to tax the poor more.

Reply to  griff
March 24, 2021 12:18 pm


They have no intention of reducing CO2 emissions.

Otherwise they would be taking on China and India.

This is socialist/marxist interference to destroy western society…

It’s what people LIKE YOU want.

Tom Abbott
Reply to  fred250
March 25, 2021 6:40 am

“They have no intention of reducing CO2 emissions.
Otherwise they would be taking on China and India.”

That is correct.

And even if the West wants to reign in China and India’s use of coal, they know that’s not going to happen, so they are wasting their time trying to push them to reduce their coal consumption.

Will John Kerry push China and India on reducing coal usage? I doubt it.

It doesn’t matter since CO2 does not need to be reduced. Only deluded alarmist think it does, and they are not brave enough to take on China or India.

So don’t expect much to change with the Paris Climate Accord other than it is probably likely that the U.S. will be spending big bucks there for some stupid thing or other.

Reply to  griff
March 24, 2021 2:30 pm

In Europe. Emitted in Asia by substitution, and probably using coal not gas, therefore effectively the opposite of the desired effect. Unless, of course, the desired effect is the kneecapping of Western economies, in which case it is spectacularly successful.

Reply to  griff
March 24, 2021 5:10 pm

It doesn’t do diddly squat, with China and India picking up the slack and exceeding any dreamed up reduction.

Tom Abbott
Reply to  Lrp
March 25, 2021 6:46 am

The Chicoms must be laughing until their sides hurt at the stupidity of the West.

Weakness invites attacks from predators.

Stupidity invites attacks from predators.

Ideally, we don’t want to appear weak and/or stupid to the predators of the world. That is not the case today. The weakness and stupidity of Western socialists, who are currently in charge, invites attacks from those bent on enslaving the world.

Last edited 1 year ago by Tom Abbott
Reply to  Tom Abbott
March 26, 2021 4:16 am

We have allowed Democrat Party to steal a Presidential election and several Senate and House seats so clearly America is stupid. We have done nothing about these crimes so clearly America is weak.

Reply to  griff
March 25, 2021 3:27 am

More Co2 means more plants, more food, more oxygen. Why do you oppose more food and more oxygen? Oh, yeah, you are a leftard.

Gordon A. Dressler
March 24, 2021 6:56 am

Re: title of the above article . . . whosoever expected that that might happen? Amazing!

March 24, 2021 7:01 am

A large number of Spanish coal plants shut down last year directly as a result of this. so its working…

Bryan A
Reply to  griff
March 24, 2021 9:09 am

Poor Spain, when the doldrums hit the fans (wind turbines) Spain will be facing premium prices to import Coal Power from places like China

Reply to  Bryan A
March 24, 2021 10:21 am

Gotta love Spain…the utility ran diesel generators at night for flood lights to illuminate the solar panels because subsidies made it profitable.

Last edited 1 year ago by antigtiff
Reply to  Anti_griff
March 24, 2021 11:04 am

Hard to find, but Griff will be sure to approve that “it could not happen in the UK”.

But it appears that they may have only used their diesel generators to produce the electricity, not shine lights on the panels.

Leftist thieves manipulating the corrupt system. Will they all walk free?

Reply to  griff
March 24, 2021 9:56 am

Reference? My guess would be that, like most places, coal is being replaced by cheaper natural gas generation.

Climate believer
Reply to  griff
March 24, 2021 10:59 am

All replaced by more gas and oil…. genius.

Share of energy produced by fossil fuels 10 years ago in Spain amounted to ~ 74%, today it’s ~ 74%.

The effect on Spain’s 0.70% share of world CO² emissions will be unnoticeable, (China 30%).

Thanks Socialist “workers” party (except if you’re a miner).

Reply to  Climate believer
March 24, 2021 12:24 pm

griff caught promulgating misinformation yet again.

Happens every time..

griff does a post…. you know its DISHONEST !

Reply to  griff
March 25, 2021 3:25 am

Yes, driving up prices and destroying energy production, exactly as you leftards want.

March 24, 2021 7:04 am

The “cost” of adapting to a degree warmer temperature is that you might have to dispose of a sweater over the next few decades. The carbon tax to fight the weather will cost the same as a couple of sweaters per week. That shows the magnitude of the current dishonesty. The usual arguments are invalid….extreme weather events are not statistically getting worse….sea level has risen 120 meters since the last glaciation….we didn’t even notice for 80 centuries….and we have to replace seafront structures every hundred years or so anyway. Tax collection, and avoidance of responsibility for extreme weather events seem to be the primary motivation of those who manipulate the mass media. The future finding costs of fossil fuels will force mankind to nuclear power and synthetic liquid fuels in a century or so anyway.

Joel O'Bryan
March 24, 2021 7:43 am

Saying “carbon prices” is as dumb as saying “carbon pollution.”

Just call it what it is, an eff’n tax on energy and the middle class lifestyle.

M Courtney
Reply to  Joel O'Bryan
March 24, 2021 10:19 am

It’s a tax on energy and any life at all.
Heating, lighting and transport to work are not middle-class perks.

Burgher King
March 24, 2021 8:36 am

Seen on a digital advertising sign today: “Gas prices are rising faster than Biden’s vote count.”

Reply to  Burgher King
March 25, 2021 3:20 am

Shamelessly stealing this one!

March 24, 2021 8:38 am

China is going to need to double its orders for coal power plants to keep up with its new role as factory for the policy-distorted world and the center of NIMBY emissions-intensive items and activities.

John the Econ
March 24, 2021 8:42 am

Um, wasn’t that the whole point? If only there was a field of study dedicated to understanding this phenomenon.

March 24, 2021 8:55 am

Doing this in the US is going to generate double and triple taxation given its existing schemes of sales tax and franchise taxes, plus some income tax effect from carbon tax inflation in activity levels.

March 24, 2021 10:24 am

How about I skip any plans to visit the ruins of the EU. That should save a lot on carbon emissions. I also talked a family member out of going there for studies so I should get a bonus credit for that.

Reply to  ResourceGuy
March 24, 2021 11:07 am

From recent EU news, Romania and Poland would be the only countries I would feel safe to visit.

Pamela Matlack-Klein
Reply to  Drake
March 24, 2021 1:35 pm

Portugal is perfectly safe too and a really nice country with friendly people who are learning English. Great food as well.

Reply to  Drake
March 25, 2021 1:43 am

You should visit Germany…

Reply to  griff
March 25, 2021 3:24 am

We already did that, visited them right into the ground. You saying it is going to have to be done again?

Reply to  ResourceGuy
March 25, 2021 1:43 am

Well, you are missing out on some forward looking and very civilised countries… visiting Germany, with its clean and orderly cities with excellent public transport and gleaming new infrastructure projects and very little chance of being shot would tell you how the US is in decline. (I am sad to see it…)

Climate believer
Reply to  griff
March 25, 2021 3:07 am

Why do you even bother…?

IQ airmap Germany.png
Climate believer
Reply to  Climate believer
March 25, 2021 3:09 am

Berlin in the top 20 for worst air quality, must be all that excellent public transport.

IQ city air quality list.png
March 24, 2021 10:25 am

This will naturally have a knock on effect here.

Anyone remember when the Arctic was considered environmentally pristine and completely off limits to development? (ANWR protests in the 1970s –>) Now thanks to the elimination of coal and the hunt for cleaner burning petroleum and LNG (the ideal transition fuel) all of that is out the window, to “Save the Planet”:

Russia Doubles Down On Its Arctic Oil & Gas Agenda

The Russian part of the Arctic contains the lion’s share of the resources with more than 48 billion barrels of oil and 43 trillion m3 of gas.

When Western sanctions (I love this twist) were imposed after the conflict in Ukraine and the annexation of the Crimea, the liquefication technology required to develop Russia’s LNG industry was out of reach. The country’s first massive project in the Arctic, Novatek’s Yamal LNG, was completed only after Chinese financiers provided the funds when Western sanctions took a bite.

Russia Begins Construction of 15 Icebreaking LNG Tankers

Arc7 ice-class LNG carriers are designed for the year-round transportation of LNG in the difficult conditions of the ice-bound Arctic sea basin.

These tankers are capable of breaking an ice bulk of up to 2 meters thick (6.5 feet). Since Arc7 tankers use liquefied natural gas as fuel, they are considered to be of advanced environmental safety. (lol)

And the money making won’t stop there, as in about 10 years there will be a new Michael Moore film showcasing Polar Bear cubs covered in oil, triggering Green Peace to get in on the action to raise millions (using the “promote the protest” strategy as they did with fracking) Triggering the usual Progressive refrain: “Why weren’t we told? Why wasn’t this on MSNBC?” (lol)

An amazing hijacking of the traditional environmental movement, thanks to the “low info” folks who are spoon-fed by the corporate/oligarchic controlled media, governments and UN.

Last edited 1 year ago by Anon
Reply to  Anon
March 24, 2021 10:45 am

Sorry, Typo: “promote then protest” strategy as they did with fracking, biofuels and biomass…etc.

And what is ingenious about this is that coal is easy to find and extract, so this allows them to go after the harder and more expensive to obtain fuels first, with the knowledge that the coal will always be there for the future.

Last edited 1 year ago by Anon
Robert of Texas
March 24, 2021 11:10 am

Raising the prices of fossil fuels…isn’t that the entire point of a Carbon Tax? So that non-competitive forms of intermittent energy can compete on an unleveled playing field?

Which of course just sends production to other cheaper countries where carbon taxes do not exist – so a form of wealth distribution.

It’s rather ironic since the poor countries are much more likely to use coal to supply their energy. So not only do you end up making energy more expensive in previously wealthy countries, you take away their jobs and cause more pollution. Only government bureaucracies and socialists could come up with such a plan.

Reply to  Robert of Texas
March 24, 2021 12:02 pm

Oh, but we enlightened fplks will impose import duties on goods from countries that haven’t gone “carbon-neutral”.

Tom Abbott
Reply to  Robert of Texas
March 25, 2021 6:56 am

“Raising the prices of fossil fuels…isn’t that the entire point of a Carbon Tax? So that non-competitive forms of intermittent energy can compete on an unleveled playing field?”

That’s one reason.

Another reason is a carbon dioxide tax gives politicians much more of your money to spend and the politicians can pretend they are doing you a favor by doing so by claiming they are saving the planet.

Joseph Zorzin
March 24, 2021 12:53 pm

In the current issue of Unscientific American
“Can Natural Gas Be Part of a Low-Carbon Future?”

“In the mid-2010s it became common to say that natural gas would be a bridge fuel to a zero-carbon future, in which solar, wind and other renewable technologies provide all of our energy without any carbon dioxide emissions to worsen climate change. But if natural gas is really a bridge, then it’s not part of the long-term plan. And if we actually build the bridge, we’re likely to stay on it.”

Reply to  Joseph Zorzin
March 24, 2021 7:08 pm

I like to think of it as saving the coal for future generations,

once they get over their MASS CO2 HYSTERIA..

… and realise that increased atmospheric CO2 is TOTALLY BENEFICIAL to LIFE ON EARTH.

Last edited 1 year ago by fred250
Joseph Zorzin
Reply to  fred250
March 25, 2021 3:27 am

I agree- but, it’s not nice living here in Massachusetts – where almost everyone is fearful of the climate emergency monster. It’s as if Isis took over the state- the climate version of Isis. The few that are not afraid of this new boogeyman don’t dare so say in public- well, very few- me being one. I’m not aware of a single politician at the local or state level who doesn’t toe the party line. And 100% of academics at all levels.

March 24, 2021 1:09 pm


March 24, 2021 1:57 pm

The market is also pushing prices higher through product differentiation,
split the product into 3 bands and then offer the top 2 products at a higher price, some people will (do) happily pay more in the belief they are helping the worlds climate.
Then you bolt in a layer of regulatory oversite from OFGEM which requires a degree of hidden funding stream, which locks in another small price increase and keeps the people confidence in the system.
Those buyers dont have time to learn all about it, and they dont have the space to develop their own ideas even if they had the time, so they have to “believe” in the system.
And not many people will admit to poor descision making . . . so up it goes.

March 24, 2021 6:33 pm

Why is it a carbon tax, Carbon this Carbon that….
I thought CO2 was their issue ?

Tom Abbott
Reply to  Nashville
March 25, 2021 6:59 am

Yes, they can’t tell carbon from carbon dioxide.

How much faith should we put in someone who can’t tell the difference between carbon and carbon dioxide?

At a minimum, we can assume such a person has not done their homework.

Tom Abbott
March 25, 2021 6:29 am

Taxing Carbon Dioxide is a HUGE scam. A huge, profitable scam. That’s why it has such momentum.

And it’s all based on the Big Lie that human-derived CO2 is going to cause a runaway temperature rise on Earth.

There is no evidence that CO2 is affecting Earth’s temperatures.

The Earth is not experiencing unprecedented warming today even though the CO2 concentrations are higher than in the past. The temperatures should be rising as CO2 levels rise, according to the theory, but the temperatures are not rising, they are flat-lining.

Temperatues declined from the 1940’s to the 1970’s while CO2 concentrations were steadily increasing..The temperatures are supposed to rise as CO2 levels rise, according to the theory, but the temperatures did not rise, they actually fell 2.0C+ over four decades from 1940 to the beginning of the 1980’s.

CO2 is not the control knob of the Earth’s temperatures. CO2 has no discernable effect on the Earth’s temperatures.

CO2 is a benign gas that does not need to be regulated in any way. People who charge you money for it are scammers.

March 25, 2021 7:09 am


S_stddev_timeseries.png (1050×840) (

But we know it’s not about carbon or climate is it. It’s about more revenue to spend on unrelated power plays.

March 25, 2021 8:04 am

Go with the flow….upside down in the case of the EU.

With Negative Rates, Homeowners in Europe Are Paid to BorrowCovid-19 pushes benchmarks deeper into negative territory, widening the pool of mortgage holders who receive interest

March 25, 2021 9:29 am

I know what TTFN stands for but WTH does TTF stand for? IAB as to WIM. MSCH. ICHS.

And can I complain to my local Council if a EUA hedge gets too high?,the%20complainant%20and%20hedge%20owner.

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