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EU carbon prices could remain languishing at little more than €20 a tonne up to 2020, based on the current EU emissions target and without further restriction of UN carbon offset credits, according to a Societe Generale analysts’ report. But with a higher target and restrictions on CER credits, EUA permit prices could be as high as €60 a tonne by that time.

The depth of the recession in Europe means emissions are well down on pre-GFC levels, and emissions permit prices have slumped. As a result, there have been wide-ranging calls for the carbon price to raised one way or another to drive investment in low-carbon energy and industry, the ultimate objective of the scheme.

The EU has been debating for some time whether to increase its overall 2020 emissions reduction target from 20 per cent below 1990 levels to 30 per cent. Meanwhile, the European Commission is examining whether to restrict the EU-ETS eligibility of some types of UN offset credits, CERs, that have credibility question marks. Conclusions are expected to be released as soon as next month, Bloomberg reports. The third phase of the EU-ETS begins in 2013 and runs to 2020.

These possibilities prompted Soc-Gen’s carbon market analysts to look at the outlook for EUA and CER prices in Europe in 2020 under four combinations of these regulatory scenarios, Reuters reports. With the economy likely to take some years to recover, emissions permits are likely to be in surplus at least until 2017 under any circumstances, and perhaps the whole of phase three in the absence of tighter targets or offset restrictions, they found.

The scenario analysis produced the following forecast prices in 2020:

* 20 per cent EU target and no CER restrictions: EUAs €22, CERs €17
* 30 per cent EU target and no CER restrictions: EUAs €47, CERs €38
* 20 per cent target with CER restrictions: EUAs €40, eligible CERs €39
* 30 per cent target with CER restrictions: EUAs €60, eligible CERs €45

The market demand-supply position is estimated to range from a surplus of 99 Mt in loosest scenario to a shortage of 1,300 Mt in the tightest.

If restrictions on CER eligibility do eventuate in Europe, the worldwide market for CERs would split and there would be two classes of credit – high-quality and standard. Both Soc Gen and Bloomberg New Energy Finance looked at potential price differentials between the two.

Bloomberg New Energy Finance’s analysis finds that CERs declared valid in the EU scheme could rise to €24 by 2016, while those declared ineligible could remain languishing around current levels of €12. The Soc Gen analysis puts ineligible CERs at €11 to €20 by 2020, depending on how tight the overall EU target level ends up.