Isra-Mart srl: Point Carbon issues 'very gloomy' forecast for EU carbon prices

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Reuters Point Carbon has slashed its forecast for the price of carbon to just €12 per tonne during phase three of the EU's Emissions Trading Scheme (EU ETS) as a result of the sovereign debt crisis.

The carbon market analyst issued a statement late last week predicting the average EU Allowance (EUA) price will be €12/t from 2013 to 2020, €10/t less than its July 2011 forecast.

Anne Kat Brevik, commercial manager at Point Carbon, said the price would be lower than previously thought because of the impact of the global economic crisis.

"Not only do we see industrial output and associated emissions down – we predict by some 700Mt for the period up to 2020 – but we also see governments recoiling from tougher climate action in the wake of domestic economic hardship," she said.

The new prediction is based on the EU meeting a target to cut emissions by 20 per cent, because member states have so far failed to agree to aim for 25 per cent emissions cuts.

Point Carbon now believes the most depressed price levels will be seen in the 2013-2015 period when the average price of EUAs could drop to as little as €10/t, before rising again in the 2018-2020 period, reaching €16/t in 2020.

The new prediction is barely a third of Point Carbon's forecast this time last year. In November 2010, it said EUAs would cost €30/t in 2016. But that figure was revised down to €22/t in July 2011 because renewable energy was being deployed earlier and in greater quantities than previously assumed.

However, despite the "very gloomy" outlook, Marcus Ferdinand, senior carbon analyst at Point Carbon, said prices were unlikely to fall in the short term because the power and heat sectors still required credits for future power sales and because a shift to a 25 per cent emissions reduction target remained a possibility.

"We assume this inherent uncertainty will deter the industry sector from selling off its entire length," he said.

However, he warned there could be a further substantial drop in EUA prices if the current debt crisis does lead to financial markets drying up. This would lead to pronounced industrial selling by industry trying to monetise its EUA length to boost cashflow.