London, 26 February 2011

Carbon prices could double by 2030 in view of the EU’s 2050 greenhouse gas target, according to a leaked draft EC document. To meet the EU’s 2050 target of a 80-95 per cent cut in CO2 from 1990 levels, carbon allowances in the EU ETS could cost €36 in 2030, €51.50 in 2040 and €50 in 2050, the draft said.

The benchmark EUA price for December 2011 delivery opened on Friday at €15.42 on ICE Futures Europe.

The paper, an impact assessment for the commission’s forthcoming “Roadmap 2050” study, said the EUA forecasts assume that the ETS cap declines at an annual rate of 1.74 per cent to 2050, the same pace already set in the scheme to 2020.

The scenario also envisages a use of offsets to meet 50 per cent of the required mid-century emission reduction.

Last week, a leaked draft of the main roadmap document suggested setting aside up to 5 per cent of the ETS cap over 2013-2020, some 500-800 million permits, to prevent a slump in prices.

Critical voices

The final version of the documents will be discussed by environment ministers from all member states on 14 March, but some of the proposals have already drawn fire from lobby groups and green campaigners.

Steel industry lobby Eurofer said the roadmap proposing ETS revisions – and the set aside idea in particular - is tantamount to tightening the bloc’s target “through the backdoor,” according to a statement on Friday.

“The confiscation of allowances from the emissions trading system… will have exactly the same effect as a unilateral move to 30 per cent, this is unacceptable,” said Eurofer’s Gordon Moffat, referring to the bloc’s current 2020 target to reduce emissions by 20 per cent.

Several EU member states, particularly eastern countries and Italy, have argued against a move to deepen the 2020 goal, claiming that greater ambition would cripple energy-intensive industries.

Eurofer said that the roadmap’s price models did not take into consideration the efficiency benchmarks in the ETS for key industries, particular for steel “where they are technically unachievable”.

Political will

But some analysts have rejected the notion that the proposed changes are an underhand attempt to strengthen the EU’s scale of emissions cuts.

Stig Schjolset, a policy analyst with Thomson Reuters Point Carbon, said it would be impossible to a deepen the bloc’s current 2020 target without political backing from the member states.

He said: “The potential ‘set aside’ of 500-800 million allowances should thus be seen as a proposal for practical implementation if the EU should be able to reach agreement on moving the target beyond 20 per cent.”

Underestimating

Meanwhile, the EC drafts were criticised by Climate Action Network (CAN) Europe, a coalition of environmental campaigners.

“The EC is basing its scenarios on unrealistically low energy prices, particularly oil, meaning that more abatement is likely to take place than is envisaged by these documents,” said CANs Thomas Wyns.

He explained that oil prices are likely to be well in excess of the $100 a barrel by 2025, the level outlined in the EC’s reference scenario, meaning that industries would be favouring investment in cleaner technologies at a much greater rate than forecast, he said.

“The current turmoil in North Africa and the Middle East and spiking oil prices are a reminder that energy prices could be far higher than many have previously assumed. The EC is using outdated (energy) numbers,” Wyns added.

Prices for Brent Crude oil touched a two-and-a-half year high of $120/ bbl earlier this week amid fears that the turmoil engulfing Libya, which meets 2 per cent of global demand, could spread to other supplier countries in the Middle East.

Ends --

By John McGarrity, Point Carbon

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