Oslo, 2 November 2010

EU Allowances (EUAs) will cost a probability-weighted average of EUR30/t in 2016, a downward revision of Point Carbon’s previous forecast, due to an increase in the amount of renewable power generation that EU countries are likely to build during the coming years, according to analysis carried out by Point Carbon, a Thomson Reuters company and the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

EUA prices are highly dependent on the assumed level of renewables as well as the supply that will be available for the market. A high share of renewables will lead to a lower carbon price compared to a situation with a low share. The EUA price ranges Point Carbon arrives at are: €15/t-€28/t in the event the EU sticks to its current 20% emissions reduction target and EUR30-50/t if the EU moves to a 30% emissions reduction goal.

The current EU target is to reduce emissions by 20% below 1990 emissions. This could be increased to 30% if an ambitious international climate agreement is reached. However, Point Carbon expects that the final target will be 25% as there is strong opposition within the EU to increasing the target and progress has been slow in terms of the international negotiations. The final decision is likely to be postponed until 2012.

Future emissions levels are also closely linked to the rate of renewable growth, the analysis shows, with power sector emissions 18% lower in 2020 in Point Carbon’s ‘high renewables scenario compared to its ‘no more renewables scenario’, which assumes renewables at today’s levels. The ‘high renewable scenario’ is one where renewable generation – particularly wind power – becomes increasingly economical in its own right and is able to develop independently of support mechanisms.

In forming its price and emissions predictions for the third phase of the EU’s Emissions Trading Scheme (EU ETS), Point Carbon included its analysis of the National Renewable Action Plans (NREAPs) which were submitted over the summer and indicate how EU countries plan to meet their 2020 renewable energy target.

“Predicting how much renewable generation will be built, which impacts by how much emissions will drop and what price will be paid for EUAs, is an imprecise science”, explains Kjersti Ulset, Head of European Carbon Analysis at Point Carbon and author of the analysis. “The rate of development of renewable generation over the next ten years is one of the greatest uncertainties affecting the projection of power sector emissions”, she said. “This uncertainty relates to the measures governments take to promote renewable electricity generation, with the most important factors being the extent that governments implement and maintain support schemes for renewables over the period and the measures which governments take to ensure that grid infrastructure develops to incorporate growth in renewable generation. In addition to these factors, there are other uncertainties such as the effect of planning policy on the development of offshore wind”.

If renewable growth continues as today, under a 20% emissions reduction target, Point Carbon estimates a shortage of 2.5 Gt EUAs for the 2008-20 period, a figure which increases to 4.9 Gt EUAs under a 30% emissions reduction target.

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