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Informist, Wednesday, Jan. 8, 2025

MUMBAI – Natural gas prices and emissions trading have risen sharply since mid-December in the European Union, driven by increased use of gas in electricity generation, Commerzbank AG said in a report. The price of an allowance to emit a tonne of carbon rose by more than 10 euros (around $10.32) and at the beginning of the year cost more than 75 euros ($77.42)for the first time since May last year, it said.

Gas-fired electricity generation in December was a good 20% higher than in the previous year, according to the Fraunhofer Institute ISE. It thus contributed 17.4% to net public electricity generation, compared to just 14.3% in the same month of the previous year. Although coal-fired power generation, which is even more emission-intensive, was around 3% below the previous year's level, the decline here was also more moderate compared to the previous months, the report said.

Natural gas shipments from Russia to the EU via Ukraine have come to a standstill since the beginning of the year, as the transit agreement expired at the end of 2024 and was not extended. The supply risks are likely to come to the fore once again as the EU's dependence on liquefied natural gas imports continues to increase, according to Commerzbank. 

The EU sourced 5% of its natural gas import requirements from Russia. However, the corresponding share in some Central European countries was until recently significantly higher, the report said. Until autumn, Austria still obtained the bulk of its gas imports from Russia, but has been able to diversify its supply routes. The gas now reaches Austria via Germany and Italy, which in turn have to import more gas, according to the report. 

On one hand, the supply of emission allowances in the auctions remains higher this year due to the additional supply under the REPowerEU plan, which is weighing on prices. On the other hand, apart from the last few months of the year, the trend towards less emission-intensive power generation is continuing, the report said. According to the European industry association Eurelectric, the share of fossil fuels in EU-wide electricity generation fell to a new all-time low of 28% last year. Emissions fell 13% from the previous year, although electricity consumption rose slightly, by 2% compared to the previous year, according to the report. 

Although the trend is likely to continue in the medium term due to the further expansion of renewable energies, the pace of emissions reduction could slow down if electricity consumption grows somewhat more strongly again in the coming years, it said. The bank sees prices in EU emissions rising in the medium term.  End

US$1 = INR 85.85

Reported by Taniva Singha Roy

Edited by Tanima Banerjee

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