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EU CO2 prices to average Eur5-10/mt to 2020: survey

Highlights

EU carbon dioxide allowances are expected to trade in a range of Eur5-10/mt ($6.80-13.60/mt) on average in the period to 2020, according to a majority of carbon market participants in a survey released May 28.

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"In Europe, while price expectations for the EU Emissions Trading System continued to fall in this year's survey, the rate of decline is slowing, suggesting that some participants see the downward trend stabilizing," said the International Emissions Trading Association, which commissioned the survey.

"Around two thirds of respondents predict an average EU Allowance price of Eur5-10 in Phase III (2013-20) of the EU ETS -- at the time of the survey, the front December [2014] contract was priced around Eur5," the Geneva-based group said in a statement.

The EU Parliament and Council in February reached agreement on the so-called backloading measure, which delays the supply of 900 million EUAs from 2014-16 to help curb a long-running oversupply and returns them in 2019 and 2020.


"The backloading of EUAs within Phase III was welcomed by respondents, but more than 90% want further reforms to the pioneering emissions market," IETA said.

"Although the European Commission has proposed a market stability reserve, only 27% believe it will be able to stimulate sufficient low-carbon investment, while 47% believe an ambitious 2030 emissions reduction target is the most effective option," the group said.

"Last year's survey found that 90% of respondents favored reforms to the EU ETS to reduce the allowance surplus -- and a similar number this year think further reforms are needed," said Jon Williams, a partner at consultancy PwC, which conducted the survey for IETA.

"All eyes will be on the 2030 debate to see if the bloc can agree a reduction target deep enough to drive the low-carbon investment that is urgently needed," he said.

On the wider question of global carbon markets, over 80% of respondents expect a global climate protection agreement in 2015 to pave the way for more carbon markets worldwide, with the potential to link them in future.

Only 4%, however, expect all major economies to face legally binding emissions reduction commitments from the deal, which is due to be struck in Paris next year.

"The role for carbon markets -- and linked markets -- in fighting climate change is being increasingly recognized by policymakers around the world, from China to Europe to California," said IETA president Dirk Forrister.

"Despite a tumultuous few years in Europe, backward steps in Australia and challenges with the CDM [UN Clean Development Mechanism], the benefits of using markets to cut emissions are still driving more nations to explore emissions trading," he said.

"We hope policymakers hear our voices and ensure that the Paris agreement facilitates the spread of carbon markets and linkages between them," said Forrister.

The IETA represents companies whose CO2 emissions are regulated, as well as non-regulated companies that make investments in carbon markets.

The non-profit group's 140 members include American Electric Power, BG Group, Capital Power Corporation, Dow Chemicals, Duke Energy, EDF Trading, GDF Suez, ICE Futures Europe, Mercuria Energy Trading, Norsk Hydro, Pacific Carbon Trust and Rio Tinto, as well as major companies in sectors such as banking, brokering and trading, legal, finance and consulting.

--Frank Watson, frank.watson@platts.com
--Edited by Peter Lucas, peter.lucas@platts.com