Oslo, 5 July 2011

The average EU Allowance (EUA) price in the third phase of the EU’s Emissions Trading Scheme (EU ETS) will be €22/t, predicts Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

The €22/t figure is €8/t less than Thomson Reuters Point Carbon’s October 2010 forecast, “mainly due to the earlier and greater deployment of renewable energy than previously assumed”, explained Anne Kat Brevik, Commercial Manager at Thomson Reuters Point Carbon.

Thomson Reuters Point Carbon still believes that the EU will adopt a 25% emissions reduction target for 2020, despite Poland’s opposition to the discussion of any target beyond 20% at the Environment Council in June. Brevik explains “if, as we expect, the EU does adopt a 25% reduction target during the first half of 2012, this would require additional emissions reductions in the order of 1 billion tonnes during phase 3 of the EU ETS. This would result in an estimated average phase 3 price of around €22/t”.

However, in the event that the EU does not agree to increase its emissions reduction target beyond the current 20%, “we expect the market to be significantly long when the combined allocation of allowances and credits is taken into account, leaving average prices in the region of €10-€15/t in phase 3”, says Stig Schjølset, Head of EU Carbon Analysis at Thomson Reuters Point Carbon, adding that even at this lower price there are still a number of abatement measures that would take place. In the event that the EU adopts a 30% reduction target, something Germany, France and the UK are advocating, the average price range for EUAs would rise to €22-€40/t.

In the short term, Schjølset believes that EUA prices will struggle to regain recent losses due to weaker demand from utilities combined with high supply levels of EUAs and credits which will keep prices relatively depressed. As such, Thomson Reuters Point Carbon believes that the market can “expect an average price of €15/t for the remainder of 2011, rising to €16/t and €17/t for 2012 and 2013 respectively”. “Prices are expected to increase more rapidly towards the end of phase 3, and we estimate prices to reach €28/t in 2020. At this stage, however, expectations and actual decisions regarding phase 4 will probably be important, increasing the uncertainty on the price forecast for the final years of phase 3”, according to Stig Schjølset.

Despite recent questions regarding confidence in the carbon markets as a whole “we believe that the EU ETS will remain a cornerstone in the overall EU climate policy”, said Schjølset. “In contrast to policy measures promoting renewable energy and energy efficiency, the EU ETS establishes a firm cap on emissions, together with a well-established framework for enforcing the cap. Because other measures do not provide EU policy makers with the same degree of certainty that emission reductions will actually be achieved, we do not think that the EU ETS will become less relevant as a policy tool to ensure that EU’s long-term reduction targets are met”.

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