How much is carbon worth? The cost of a permit for a European factory or power plant to emit a tonne of carbon dioxide has risen fivefold over the past three years. It topped €100 a tonne on Tuesday.

That is good news for the energy transition. But for an investor treating carbon as an asset class, a lot is now in the price.

Climate watchers should cheer the €100 milestone. For a long time, the cost of the allowances — covered by the EU’s cap and trade ETS system — was too low to influence company decisions. Finally, carbon has reached a price high enough to reflect environmental costs and to change behaviour.

That should help spur investment in green technologies.

For instance, a glassmaker paying €50 per megawatt hour for natural gas, plus another €20/MWh equivalent in CO₂ permits, may be willing to buy biomethane, which can cost as little as €65/MWh. Capturing CO₂ from industrial sites and storing it in depleted gasfields costs something like €90-120/tonne, so this technology is becoming commercially viable too.

Indeed, a carbon price of €100/tonne is enough to abate about half of global emissions, according to Goldman Sachs Carbonomics research. That is at current costs. Over time, new technologies such as green hydrogen should become cheaper as their use becomes more widespread.

Investors betting on the rise of carbon permits have done very well so far, both for themselves and for the planet. This niche group include utilities and industrial companies, who acquire more than their annual permit requirements, and financial investors that have spotted a juicy opportunity.

The investment case has now weakened for carbon, which Lex valued at $100 (€82) two years ago when permit prices were half that. They still need to rise over the next 20 years to force more CO₂ out of the system. Suppose they double to €200/tonne by 2040 — a reasonable guesstimate. That performance would compare poorly with many other investments. For once, a market may have efficiently done its job.

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