October 4, 2019 / 2:23 PM / a month ago

Analysts cut carbon price forecasts as Brexit clouds market: Reuters poll

LONDON (Reuters) - Analysts have lowered forecasts for the price of European Union carbon permits in the fourth quarter as the threat of a no-deal Brexit hangs over the market.

EU Allowances (EUAs) are expected to average 26.13 euros/tonne in Q4 2019, according to a survey of eight analysts polled by Reuters, a 3.4% drop compared with figures given in July. 

But further out, forecasts for 2020 and 2021, at 34.50 euros a tonne and 36.79 euros a tonne were 0.4% percent and 6.9% percent higher, respectively, from the July forecasts.

The European Emissions Trading System (ETS) charges power plants and factories for every tonne of carbon dioxide they emit.

With Britain poised to leave the European Union at the end of the month it is still unclear whether the country will leave with a deal, no deal or further delay its exit.

Under a no-deal Brexit, Britain would automatically leave the European carbon scheme, leading to expectations of a sell-off by British firms holding EU carbon permits they no longer need.

“Under this scenario, we could see EUAs fall sharply between 3-5 euros,” said Ben Evans, an analyst at ClearBlue Markets.

But an extension to Britain’s expected departure date is unlikely to lift prices, analysts said.

“We don’t expect prices to surge in the case of an extension to Jan. 31, 2020. With such a deadline, the uncertainty if the UK needs to comply with 2019 ETS emissions will remain,” said Yan Quin, senior carbon market analyst at Refinitiv.

Levies under the ETS would be replaced by a carbon tax from Nov. 4 if Britain leaves the EU with no deal.

Analysts expect prices to rise next year from levels around 23.50 euros to an average of 34.50 euros a tonne in 2020 due to a market stability reserve (MSR) designed to remove surplus allowances.

However, analysts warned that uncertainty over how coal plant closures are treated by member states could have an impact on future prices.

Germany, Europe’s biggest emitter of carbon dioxide and buyer of permits under the EU ETS, has announced plans to close coal-fired power plants by 2038, but it is unclear whether the country will also cancel some of its carbon allowances to prevent a surplus accumulating.

Reporting by Susanna Twidale, editing by Louise Heavens

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