Rising gas prices pushing up cost of carbon permits

The European carbon market is set to have a greater impact on the bottom lines of heavy polluters just as prices are spiking and volatility rises, as gas-to-coal switching in the power sector raises demand for the pollution permits. 

In recent months, rising European gas prices have forced German power plants to burn more coal and have driven up the price of European Carbon Allowances, and the war in Ukraine has also thrown the market into disarray as more coal plants are switched on. This transition, coupled with a proposal by the European Commission to phase out free carbon allowances for airlines, could create a cost squeeze for airlines Wizz Air (WIZZ) and easyJet (EZJ).