Analysts are predicting carbon prices in European Union are in for a sharp rise in value this year as a result of the bloc’s back-loading plan for its troubled Emissions Trading Scheme (ETS).
European carbon prices could rise to around €7.50 a tonne this year, bucking a three-year trend of declining market value.
That is the conclusion of analysts from Bloomberg New Energy Finance (BNEF) as the EU prepares to launch an emergency measure to temporarily tackle the glut of allowances that has afflicted the market in recent years.
According to BNEF, the global carbon market will be worth €46bn in 2014, rising 15 per cent from last year’s rock bottom value of €40bn.
Prices sank to less than €3 a tonne in April after the European Parliament rejected a ‘back-loading’ plan to delay the sale of 900 million allowances until 2019-20.
However, a compromise deal was finally reached towards the end of last year, and the European commissioner for climate action is now seeking to launch the new ‘back-loading’ plan in the first quarter of this year.
Prices now stand at around €5 a tonne of CO2, but BNEF expects them to rise to €7.50 a tonne during the course of the year as the reduction in the number of allowances being auctioned takes effect.
Australia’s current carbon price regime, which the conservative Liberal-National government is trying to repeal, is set to revert to a market based system in July 2015 and will be linked to the EU ETS.
“Carbon markets have been on a roller coaster over the last few years and we continue to see a stomach-churning ride ahead,” Guy Turner, chief economist and head of commodities at BNEF, said in a statement.
“The value of the market peaked at around €100bn in 2011 and then plummeted to around €40bn in 2013.
“Thanks to back-loading in the EU ETS, the track should turn upwards again in 2014, potentially reaching new highs of €180bn by 2016.”
However, he added that the value of the market could sink again towards the end of the decade when allowances that were not auctioned between 2014 and 2016 were put back on the market.
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For compliance players, this volatility will be unwelcome,” he said.
“But for speculators with a sense of adventure and good timing, they could prove tempting in 2014.”
The EU is currently debating longer-term reforms to permanently tackle the over supply in the market by either introducing more demanding emission-reduction targets for carbon-intensive firms, or cancelling several planned auctions.
However, any proposals that could permanently push up the price of carbon in the market are likely to be fiercely opposed by a number of member states and industries that have consistently argued that more ambitious reforms to the market should be shelved.
