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Point Carbon Forecasts US Carbon Allowances at $13.70 in 2012

Analysts Extract Price and Effect from Obama Budget

Washington, D.C. — February 27, 2009 — Analysts at Point Carbon have extracted the potential carbon price and effects on the United States’ economy of a federal carbon cap as proposed by President Obama. The estimates come from Mr. Obama’s budget proposal submitted to Congress on Thursday, February 26, 2009 and do not reflect real market prices.

According to Point Carbon, a world-leading provider of independent analysis and consulting services for global power, gas and carbon markets; Mr. Obama’s budget presumes a price for US carbon allowances at $13.70 in 2012. Presently, European Union Allowances (EUAs) are priced at €10.50 (US $13.35).

That number assumes that, starting in 2012, approximately 80 percent of the economy would be placed under a cap on greenhouse gas emissions at 2005 levels, roughly 5.8 billion tons of carbon dioxide equivalent (CO2e). With the cap declining around 2 per cent per year after 2012, Point Carbon estimates the price of carbon in 2020 would go up to $16.5 per allowance. The analysis pertains only to the US and precludes a pan North American cap-and-trade scheme, favored by a growing number in Canada and Mexico.

Veronique Bugnion, Managing Director of Trading Analytics and Research at Point Carbon translated this into effects on the average consumer. “A carbon price of $13 per ton would produce an increase in the cost of gasoline of $0.12 per gallon, a six percent increase over current retail gasoline prices. The carbon price impact would grow to $0.15 per gallon by 2020.” This would also result in a 6.8% increase for average retail electricity rates, though Bugnion notes that more coal heavy regions might see higher increases. Some of the increase might be offset by new renewable energy construction under renewable electricity standard proposals in the House and Senate.

Noted by the market analysis firm is that Office of Management and Budget numbers put forward yesterday do not represent market values. However, the burgeoning US carbon market does not seem to disagree with the projections. The Carbon Finance Instruments for the US 2013 contract [CCX: CFI-US 2013] at the Chicago Climate Exchange is a proxy for a would-be US federal cap-and-trade scheme, with one CFI contract representing 100 metric tons of CO2e. It closed at $12.18 per ton yesterday, up $1.18 from the previous day, after the budget proposal was announced.

About Point Carbon
Point Carbon is a world-leading provider of independent news, analysis and consulting services for European and global power, gas and carbon markets. Point Carbon’s comprehensive services provide professionals with market-moving information through monitoring fundamental information, key market players, and business and policy developments.

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