Hedge fund manager who profited from EU carbon credits rally predicts that prices will fall

According to a former market bull, the price of carbon permits will drop as Europe moves away from dirty fuels.

Per Lekander who made a lot of money by correctly predicting the rally in 2018 in carbon prices said he is now betting that the market will fall sharply over the next few months, as natural gas and coal prices drop.

Carbon permits, also known as emission certificates, give energy companies the right to pollute. In February, they reached an record high at €100 per tonne, aided by a rise in coal consumption as Russia cut gas exports into Europe. Lekander believes that Europe’s energy crises has prompted a faster shift than expected to cleaner energy sources, resulting in a lower demand for carbon credit.

Lekander said, “Europe has done an amazing job at lowering emissions.” He was previously a portfolio director at the London-based investment company Lansdowne Partners. “I think coal and gas prices will continue to fall, and they’ll be much lower on a longer-term basis,” said Lekander. “And the emissions market will collapse.”

EU Carbon Credits are currently trading at €86. This is a 430 percent increase from five years ago. Lekander stated that he would end his short position once the price reached €60. Carbon credits are required for companies operating in EU sectors like gas, coal power production or industrial manufacturing.

Refinitiv, a data provider, estimates that the total value of EU Carbon Credits traded in 2013 was €751bn. Russia cut off natural gas to Europe as Europe supported Ukraine financially and militarily following Moscow’s invasion of Ukraine last year. Lekander stated that the need for new energy sources has prompted a greater use of renewables.

According to the think tank Ember, wind and solar power generated 22,3% of the EU’s electricity last year. This was the first time that gas had overtaken it.

Lekander believes that the abundance of EU gas storage will also prevent the need for further coal use during the winter.

The European gas storage capacity, which is crucial to meeting the higher demand during the winter months, is 80 percent full — far ahead of normal levels for this time.

Gas prices are lower than they were before the crisis, but still higher than the average price of gas in Europe. Gas prices are falling, and this means that coal is not as attractive to produce electricity. Coal emits twice as much carbon dioxide per megawatt-hour compared to natural gas.

Lekander said that Europe will fill up its gas storage by the second half August. “The gas prices will be trashed, and if they are trashed, then the coal prices will also be trashed,” said Lekander.

Lekander’s hedge fund of $1.8bn makes bets and invests in commodities. It can also make bets on global energy companies. He said that a bet on rising oil prices last year helped the fund gain 20 percent.

Lekander’s bet is not limited to carbon permits. He also bets on green energy companies listed on public markets to perform better and non-renewable groups to suffer over the next few months and years.

Lekander has been particularly interested in US companies after the Inflation Reduction Act was passed in 2013. The act committed $369bn of subsidies and investments for renewable energy projects over the next ten years.