The European Commission’s expected unveiling in January of its energy and climate package could trigger a jump in the price of EU allowances (EUAs) up to €35, about 50% above current levels, according to a leading bank analyst.
Speaking at a side event in Bali on 7 December, Deutsche Bank analyst Mark Lewis said: “If the Commission comes out with a clear statement of the bankability of EUAs, and if they say ‘we’re serious about meeting the  cap’, it could be enough to drive prices significantly higher.”
Responding to suggestions that the price of allowances in the EU Emissions Trading Scheme (ETS) from 2012 to 2020 could be anything between zero and €100/tonne of carbon dioxide (CO2), Lewis said: “The price will only be zero if you think the EU isn’t serious about meeting its targets. If you think they are, the price of carbon is only going one way.”
The European Commission is scheduled to announce proposals on 23 January for the EU to meet energy and environmental targets agreed by EU leaders at their Spring Council in March 2007. The targets commit the EU to at least a 20% reduction in greenhouse gas emissions below 1990 levels by 2020, to sourcing 20% of its primary energy from renewable sources, and to increasing energy efficiency by 20% against business-as-usual projections.
The targets will lead to significant scarcity in the carbon market, said Lewis, who is director of commodities research, global carbon markets, at Deutsche. Given limits on the numbers of carbon credits from outside the EU that can be used to meet member states’ targets after 2012, the marginal cost of emissions reductions will be set by the cost of switching electricity generation from coal to gas,suggesting a carbon price of €35 per allowance, forecasts Lewis....MORE