October 10, 2008 / 12:26 PM / 10 years ago

European carbon prices to quadruple by 2020-SocGen

LONDON, Oct 10 (Reuters) - European carbon emission prices could rise fourfold to 80 euros a tonne by 2020, French bank Societe Generale (SOGN.PA) said in a research note on Friday.

Benchmark EU Allowances (EUAs), the permits traded under the 27-nation bloc’s Emissions Trading Scheme, currently trade around 22 euros ($30.19) per tonne CFI2Z8, but with a narrowing supply and limited use of imported Kyoto offsets, prices could surge, said SocGen Carbon analyst Emmanuel Fages.

“Based on a 21 percent reduction in emissions by 2020 (from 1990 levels), the EUA price varies between 25.2 euros and 37 euros for Phase II (2008-12) and between 45 euros and 79.3 euros for Phase III (2013-20),” Fages said.

A climate and energy directive tabled by the EU’s Commission in January, dubbed “20/20/20 by 2020”, seeks to reduce European emissions by 20 percent below 1990 levels by 2020, increase energy efficiency by 20 percent and source 20 percent of power from renewable energy.

The EU executive said emissions reduction targets would rise to 30 percent if an international climate treaty to succeed the Kyoto Protocol was reached.

“In the case of a higher target for the EU, prices grow up to 93.8 euros a tonne in 2020 and we observe a sharp rise in the prices in Phase II (to 45.5 euros in 2012),” Fages said.

Under the current 20 percent reduction scenario, EUA allocations to industry are expected to drop to 1.72 billion in 2020, down from 1.974 billion in 2013 and 17 percent below the average 2.083 billion seen issued annually in Phase II.

The use of imported Kyoto offsets will also be limited to 1.4 billion tonnes across both phases unless a new pact is agreed.

These proposals were tweaked slightly by the EU’s Environment Committee in a vote on Tuesday [ID:nL7114084], and may evolve further ahead of a final parliamentary agreement on the package, expected later this year or in early 2009.

Despite the proposed adjustments, Fages still sees heavy implications for the market.

“The very low allocation levels and the restricted use of (Kyoto) credits are very strong measures, which will make an impact on the market,” he said. (Reporting by Michael Szabo; Editing by James Jukwey)

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