The EU carbon market has hit an all-time high above €40 a tonne.

It cleared its previous all-time high around €31, which had stood for almost 15 years, just a couple of months ago.

Increasingly seems like carbon is undergoing a fundamental repricing.

Key thing for policymakers (and frankly analysts in the once niche sector) to understand is that repricing events don’t happen at a steady pace in line with the slow evolution of fundamentals or policy.

When almost everyone in a sector agrees ‘carbon prices are going to be higher in the coming years’ - and there are very few (if any) traders or analysts taking the under on that (if you are my DMs are open) then short-term fundamentals can easily get overridden

That’s doubly true when you’re talking about a ‘commodity’ with near zero cost of storage and interest rates at incredibly low levels (and the world is awash with liquidity).

There’s little disincentive for traders and investors to wait.

Put simply if you think something trading at €30 in November is going to be worth €50 or €100 euros in 3-5 years time traders are not going to sit on their hands or pay too much attention to coal-to-gas switching costs. The old models are most likely broken.

There are of course still risks. A big utility could cash out its holdings of EUAs. Policymakers can step in if they think it goes too far, too fast. Herding activity creates bubbles.

But what you can’t assume is that the market will wait.

Background: https://www.ft.com/content/a5ff89ec-323c-4fb8-85a1-9d0225ae3cdb