Carbon to Cost $15 per Tonne Under Kerry-Boxer Bill

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.

For comments or further information, please contact:

Adam Williams
Marketing Coordinator North America, Point Carbon
Mob: +1 202 460 9734
E-mail: aw@pointcarbon.com  

Candida Jones
PR Manager, Point Carbon
Mob: +44 (0) 777 5754 763
E-mail: cjo@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.

Point Carbon now has more than 15,000 clients, including the world’s major energy companies, financial institutions, organisations and governments, in over 150 countries. Reports are translated from English into Japanese, Chinese, Portuguese, French, Spanish and Russian.

Every year, Point Carbon’s Carbon Market Insights conferences gather thousands of key players for the carbon community’s most important annual conferences. Point Carbon also runs a number of high-level networking events, workshops and training courses.

Point Carbon has offices in Oslo (Head Office), Kiev, Malmö, London, Washingtonne D.C., Tokyo, Beijing, Hamburg and Zürich.