Washington, 12 October 2009 

Analysts at Point Carbon have created a new model to forecast prices for carbon allowances under an emission trading system in the United States. A bill establishing a cap-and-trade programme in the US is currently being debated by Congress. 

The world-leading provider of market analysis for the energy and environmental markets has created a dynamic model to help companies plan for carbon costs in the US. Point Carbon’s US Model for Allowances, or PUMA, forecast prices for the carbon market as proposed in the draft legislation authored by Senators Kerry and Boxer to reduce US greenhouse gas emissions. The Kerry-Boxer text draws heavily upon the Waxman-Markey bill passed earlier this year by the House. PUMA was unveiled last week during a closed presentation covering all elements of the Kerry-Boxer draft text.

“It is crucial to develop a holistic model to help business leaders better budget for the carbon constrained economy of tomorrow,” said Véronique Bugnion, Managing Director of Trading Analytics and Research at Point Carbon. “Point Carbon’s PUMA is the first model to incorporate realistic offset investment behavior and an accurate handling of the many intricacies of the proposed federal bill, such as the role of the reserve price in reducing price volatility.”

Point Carbon forecasts an average price of $15 per metric tonne of carbon over the 2012-2019 period and identifies the key price drivers during the first decade of the programme: Complementary policies reduce emissions lower carbon prices by $5 a tonne on average because they reduce the gap between business-as-usual emissions and the cap. Point Carbon’s model includes the effect of the proposed joint Environmental Protection Agency and Department of Transportation vehicle standard and the Senate’s 15% Renewable Electricity Standard (RES).

The supply of domestic and international offsets fills the remaining gap between emissions and the cap at a low cost. Carbon prices will likely stay at the reserve auction price (price floor) through 2019 as the cost of reducing emissions will be less than the price floor. Point Carbon’s model includes a forecast of the domestic and international offset supply.

The auction reserve price helps keep prices down in the long term. The price floor provides an incentive to save (bank) allowances early on and helps compliance in later years of the programme when prices are more likely to rise.

“The synergies between the different policies are very strong,” noted Emilie Mazzacurati, Editor for Point Carbon’s Research series in North America. “A mandate for renewable electricity and cleaner cars has a direct impact on prices, it helps meeting the target at a lower cost,” Mazzacurati added.

Point Carbon will update PUMA and continue to provide carbon market participants and stakeholders rapid response with its critical insights.

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