May 30, 2012 / 12:11 AM / 7 years ago

EU CO2 prices to treble on supply cut: survey

LONDON, May 30 (Reuters Point Carbon) - European carbon prices could treble from current levels to average above 19 euros ($23.80) over the next eight years provided European governments cut supply of permits, according to a survey by consultants PwC.

In its annual GHG Market Sentiment Survey, PwC found that 80 percent of respondents were in favor of cutting supply in a bit to boost carbon prices from under 7 euros to a level that encourages firms to invest in clean technology that cut emissions.

Of those, two-thirds preferred EU regulators to cut supply by taking on a deeper 2020 emissions target rather than a one-off permanent withdrawal of allowances from the market.

The 27-nation bloc is currently working towards reducing its greenhouse gas (GHG) emissions by 20 percent below 1990 levels by the end of the decade, although some nations have called for a 30 percent cut.

The European Commission is also toying with delaying the sale of allowances from the early years of the EU Emissions Trading Scheme’s third phase (2013-2020) to underpin prices that have slumped to under 7 euros as flagging factory output hit demand for permits.

Other intervention options proposed by those surveyed included introducing a legally-binding CO2 cut target of 50 percent by 2030 and launching a carbon central bank to monitor prices and regulate supply in the EU ETS.

Assuming supply is cut and Europe’s economy recovers, EU Allowance prices could rise to more than 38 euros by 2030, the survey found, while prices for U.N. carbon credits could average nearly 12 euros each in the 2013-2020 trading period and 22 euros by 2030.

The survey found that countries including Brazil, Indonesia and many from sub-Saharan Africa would be major suppliers of U.N.-backed carbon offsets by 2020.

On the other hand, the role of China, the largest supplier of offsets to date, would be diminished as the country grows economically and buyers seek to source credits from less affluent countries.

Russia, one of two main producers of Emissions Reduction Units (ERUs) - credits issued under Kyoto’s Joint Implementation Programme - would not be supplying any offsets by 2020, all survey respondents agreed without giving reasons.


Survey participants were also skeptical that the U.N.’s aviation body would launch a global cap-and-trade market for airlines before 2015, believing instead that governments will implement similar measures to regulate airplane emissions.

ICAO and its members are working on a scheme that they hope will replace the EU ETS, which from this year includes all commercial airlines using EU airports.

The inclusion has triggered mass opposition to the scheme, with countries including the U.S., China and India threatening retaliatory trade measures.

A large number of survey participants predicted that carriers would simply comply with the new rules.

The survey also found that action to control shipping emissions would likely come by 2015 from the sector’s regulating body, the International Maritime Organisation, and would be additional to efforts to improve the energy efficiency of ships that were announced last year.

Reporting by Michael Szabo

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