More than 50% chance of Copenhagen deal, says Point Carbon
Likely target to be 15% below 1990 levels by 2020, EU may commit to 30% cut, raising carbon price to €40 ($56) in 2016
Oslo (8 July 2009)
The probability that an international agreement with quantitative targets will be signed in Copenhagen in December is at least 50%, according to a recent report - Carbon Market Analyst “Moving towards a Kyoto successor: What will we get there?” - released by Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.
If the Waxman-Markey bill is passed in the US Senate before the Copenhagen summit, a likelihood that Point Carbon puts at more than 50%, then the probability of a global deal increases considerably and, conversely, if the bill does not pass then Point Carbon predicts that the Copenhagen summit will not become what the EU would call a “satisfactory agreement.” “If a deal is signed, we expect the targets to be 15% below 1990 levels by 2020, with the EU pledging to cut its emissions by 30% and the US by 7% below their 1990 levels”, says Kjetil Røine, Manager at Point Carbon and author of the report. He added “for Japan we expect a target of a 15% reduction on 1990 levels, for Canada a 7% reduction, for Australia a 15% reduction compared to 1990 and we do not expect China to take on quantified commitments in the next period”.
How policy will impact carbon prices
Point Carbon predicts, based on a probability-weighted scenario approach, that the carbon price for European Union Allowances (EUAs) will be €40 ($56) in 2016. If the Waxman-Markey bill passes then Point Carbon predicts that the carbon price within the US ETS will be €14 ($20) in 2016. However, there is a 40% chance that no federal cap-and trade scheme will be in place in the US by 2016, in which case the carbon price would be zero.
These price predictions alter drastically in the event that the cap-and-trade schemes in the US and EU become linked. In this event, the price of carbon within the EU ETS may drop by up to 50% whilst the price within the US scheme would probably rise by some 20-30% as European demand for ‘cheap’ US allowances would increase.
Whether the EU will opt for linking in the end depends on how the EU politicians balance two conflicting concerns. The EU has always argued that a significant share of the reductions should be done domestically, which will not be the situation in case of linking. On the other hand, a non-linked EU ETS will give significantly higher costs for the industry and consumers in the EU than in the rest of the industrial world.
Offset credits – what will happen to the CDM and JI?
Røine believes that the Clean Development Mechanism (CDM) will continue to be the dominant credit generating mechanism after 2012. Joint Implementation (JI), on the other hand, will, in theory, continue, but the demand will be very limited as the US will most likely not allow Emission Reduction Units (ERUs), generated from JI projects, to enter its market.
It is also likely that the current climate negotiations will see the introduction of new mechanisms for crediting sector and forestry activities.
“The international agreement is to a larger extent than in the Kyoto protocol a reflection of national laws, however the added value of a global deal is still obvious; more ambitious targets for some countries, most notably the EU and Australia, a coordinated system for credit generation, reduced costs and agenda setting”, Røine concluded.
Point Carbon will be closely following and analysing the climate negotiations in the run-up to Copenhagen and will be issuing regular press releases, holding briefings and offering insights into policy developments. Analysts are available for interview.
Note to editors
The Kyoto Protocol on Climate Change, which entered into force in February 2005, resulted in the launch of the EU’s Emissions Trading Scheme (ETS). The EU ETS is the world’s first international emissions trading scheme. It works on a cap - and - trade basis, where the total allocation is set at the start of a trading period. EU Allowances (EUAs) are the tradable unit under the EU ETS. Up to a certain limit, it is also allowed to import carbon permits from third countries (CERs and ERUs).
The second period of the EU ETS runs from 2008-2012 and coincides with the compliance period.
COP 15, or the United Nation’s Copenhagen climate change summit, will begin in Copenhagen on December 7. Officials will try to agree a new climate treaty as a successor to the Kyoto Protocol, which expires in 2012.
For comments, further information, or to see a copy of the report, please contact:
Candida Jones
PR Manager, Point Carbon
Mob: +44 (0) 777 5754 763
E-mail: cjo@pointcarbon.com
Kjetil Røine
Manager, Point Carbon
Mob: +47 95 20 13 55
E-mail: kr@pointcarbon.com
Stig Schjølset
Senior analyst, Point Carbon
Mob: + 47 90 56 04 59
E-mail: ss@pointcarbon.com
For US press enquiries, please contact:
Adam Williams
Marketing Coordinator North America, Point Carbon
Mob: +1 202 460 9734
E-mail: aw@pointcarbon.com
About Point Carbon
Providing critical insights into energy and environmental markets.
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.
Point Carbon’s in-depth knowledge of power, gas and CO2 emissions market dynamics positions us as the number one supplier of unrivalled market intelligence on these markets. Our staff includes experts in international and regional climate policy, mathematical and economic modelling, forecasting methodologies, risk management and market reporting.
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