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Investment banks pick their top plays for a record-breaking rally in carbon prices

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Behind a drained carp pond, water vapour from the cooling towers of the Jänschwalde lignite-fired power plant of Lausitz Energie Bergbau AG (LEAG) rises into the cloudy autumn sky.
Patrick Pleul | picture alliance | Getty Images

Europe is home to the world's largest carbon trading scheme —and prices have been soaring. Analysts expect this record-breaking rally to continue and have picked the stocks most likely to benefit from the trend.

The European Union caps carbon dioxide emissions for many businesses and surplus allowances can be bought and sold. The benchmark carbon price was trading around 51.75 euros ($63.06) per metric ton Monday, close to the 56 euros it hit earlier this month – its highest level since the launch of the market in 2005.

The contract's meteoric rise from around 20 euros before the coronavirus pandemic is thought to be underpinned by Europe's more ambitious climate policy and increased financial investment in the market. Looking ahead, experts are bullish, with some backing a price-end target of more than double current levels.

Here, analysts from Berenberg, Deutsche Bank, Barclays and Morgan Stanley name some of the stocks expected to outperform as a result of this burgeoning trend.

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