EUA Prices in 2013, 2016 Forecasted Down

Oslo – October 29, 2009 – Point Carbon has updated its EU ETS Scenarios to 2020 report forecasting down prices of European Union Allowances (EUAs) in 2016 to €37 per metric ton of carbon dioxide equivalent (CO2e), down €3 per ton from its previously issued forecast in May 2009. The world-leading provider of market analysis for global power, gas and carbon markets also forecasted down the 2013 EUA price from its previous forecast of €30/t to €28/t.

The newly forecasted prices reflect Point Carbon’s latest study of long-term emissions as well as domestic and international policy projections. Continued challenges in the international negotiations and low likelihood of a legally binding agreement at the upcoming Copenhagen summit, partly due to delays in the creation of a US cap-and-trade program, is the top contributing factor for the revision in market policies. The lingering recession’s impact on emissions continues to impact prices.

“We have re-run the emissions and price models and have made new assessments for the different political outcomes.” said Kjersti Ulset, Head of European Carbon Analysis at Point Carbon. “The large difference between EU and US positions in the negotiations reduce the likelihood of a satisfactory agreement – from EU’s point-of-view. This makes it harder for the European Union to agree to a 30% reduction target, leaving a target in the 20-30% range increasingly likely.”

However, Point Carbon still sees a 30% reduction target as the most likely scenario for the European Union, assigning it a 50% chance of occurring. If the EU were to pledge itself to a 30% reduction, prices would be in the €30/t – €60/t. Under Point Carbon’s models, steep abatement curves and a large dependence of credits in this scenario increases the chance for very high prices. Yet under a scenario where the EU only agrees to a 20% further reduction of emissions, prices for EUAs would fall in the €20/t - €40/t range.

While many market-shaping political decisions still hang in the air, some recent political decisions have cast more certainty on the market shape and size in the years ahead. In particular, the European Commission’s draft decision along with new allocation rules from the ETS directive, have allowed Point Carbon to forecast the amount of free allocation towards 2020.
Point Carbon expects 47% of the 2013 allocation to be auctioned, increasing to 56% in 2020. The highest percentage of auctioning for any industry will be the power sector, having 80% of its 2013 EUAs auctioned. However, industry will receive a very high percentage of free allowances

“The EU takes policies in favor of free market price formation, and we see now that as the EU ETS continues to mature, a more pure market structure is taking place.” said Karl Magnus Maribu, author of the report. “Though this route leaves little chance of linking with other emissions trading systems, it leaves hope for potential linkage in the next phase to create truly global carbon markets.”

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