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Analysts raise EU carbon price forecasts on expectations of market reform: survey
October 11, 2017 / 1:06 PM / 2 months ago

Analysts raise EU carbon price forecasts on expectations of market reform: survey

LONDON (Reuters) - Analysts have raised their forecasts for European carbon prices in the bloc’s Emission Trading System (ETS) to 2019 on expectations that plans to reform the market will significantly curb oversupply.

Analysts expect EU Allowances (EUAs) to average 7.16 euros/ton in 2018, and 9.92 euros/ton in 2019, according to the survey of seven analysts by Reuters published on Wednesday. 

The forecasts were up 19 percent and 16 percent, respectively, on prices given in July, of 6.01 euros for 2018 and 8.54 euros for 2019.

Analysts also for the first time gave average price forecasts for 2020, which at 14.70 euros are almost double current traded prices around 7.40 euros/ton.

The European Union’s ETS, a cap-and-trade permit system to regulate industry pollution, has suffered from excess supply since the financial crisis.

As part of the process to fix the scheme European lawmakers are working on reforms, and plan to double the rate at which the so-called Market Stability Reserve (MSR) -- a measure designed to remove from the market surplus permits which have depressed prices -- soaks up excess allowances.

“The MSR will considerably reduce auction supply in 2019 and this should have a strong bullish effect on market prices, putting more pressure on utilities to find EUAs for compliance,” said Sandrine Ferrand, analyst at Engie Global Markets.

In the shorter term analysts lifted their average price forecasts for Q4 2017 by 26 percent to 6.82 euros/ton on expectations that prolonged outages to French nuclear plants could lift EUA demand from fossil-fuel power generators in neighboring countries which usually import power from France.

After several delays in the restart of some of France’s nuclear reactors following maintenance and a review ordered by the nuclear watchdog, 21 out of France’s 58 nuclear reactors are offline.

“The French nuclear fleet is a joker (in the pack), as it is uncertain whether the security probes will extend the planned outages, thus providing further support to power and carbon,” said Haege Fjellheim, head of carbon market analysis at Thomson Reuters.

Reporting by Susanna Twidale, editing by Louise Heavens

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