The price of permits on the European Union's carbon market hit 100 euros ($106.57) per tonne for the first time on Tuesday, a milestone that reflects the increased costs that factories and power plants must pay when they pollute.
Other EU countries view a robust carbon price as vital to meeting climate goals. A diplomat from one EU country, who spoke on condition of anonymity, said a strong carbon market sent "the right signals" to investors and industry on the need to accelerate the transition from fossil fuels.The EU ETS was launched in 2005 and the price dropped to nearly zero in 2007 during the global financial crisis when the market was heavily over-supplied.
That increase helped to reduce emissions by prompting utilities to switch from coal to gas, which produces roughly half as much CO2 when burned, to avoid paying a bigger carbon bill - although soaring gas prices last year temporarily made coal generation cheaper. Investments in hydrogen produced from renewable energy - instead of the conventional production method of using gas - could become economically competitive if CO2 prices stayed above 100 euros per tonne, said Mark Lewis, head of climate research at Andurand Capital Management.
Such technologies could also receive a boost from new state aid or EU funding, as the bloc races to offer incentives to green industries, to avoid firms relocating to take advantage of U.S. subsidies on offer to companies who develop such technologies in North America.
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