By Nina Chestney and Michael Szabo
LONDON, Nov 17 (Reuters) - European carbon emissions could
fall to 15 euros a tonne, halving a two-year high hit this
summer, if industrial output and crude oil prices fall further.
Carbon prices plummeted in early November and continued
their drop on Monday to around 17 euros a tonne, a 19-month low.
They have followed other commodity and energy markets lower in
the face of a European recession.
Analysts see a potential low of 15 euros for EU carbon
prices on a combination of lower industrial output, more
emissions permits coming to market and falling oil prices.
Crude oil prices, which strongly influence carbon prices,
hit a 22-month below $55 a barrel low last week.
Analysts said strong selling was pushing carbon prices lower
as European companies, hoping to raise cash in the financial
crisis, liquidate their EU emissions permits.
Analysts and traders predicted earlier this month that
prices would go lower before they could rebound to above 20
euros a tonne [ID:nLV577819].
Carbon emissions futures for December 2008 delivery
have not traded below 15 euros since March 14, 2007. The
benchmark contracts have fallen some 42 percent since hitting
the 2-year high of 29.69 euros a tonne in early July.
The EU Emissions Trading Scheme (EU ETS) gives installations
a certain quota of emissions permits called EU Allowances
(EUAs), and forces them to buy more to cover any carbon
emissions surplus.
"In the near-term, 15 euros which is the price people paid
for (carbon offsets imported from developing countries) is a
technical floor," said UBS analyst Per Lekander.
Further cuts in industrial output would reduce emissions,
thereby reducing demand for EUAs which would drive prices lower.
Added to that, many EU member states which have delayed
giving industry their 2008 quota of EUAs are issuing permits
now, significantly increasing the market's supply.
Italy said it will issue nearly 200 million EUAs this week,
following Germany's allocation of over 300 million last week
[ID:nLE64551]. The UK also plans to auction 4 million allowances
on Wednesday and the Netherlands said it will distribute 86
million EUAs on Dec. 1.
FIRM FLOOR
Under current EU proposals, unused EUAs issued between
2008-2012 can be banked through to the scheme's third phase,
which runs from 2013-2020.
As a result, analysts say is unlikely that the market will
see the same over-suppy that led to a total price collapse in
the scheme's first phase (2005-2007), as there is more incentive
to hold EUAs than to sell them at current prices.
Barclays Capital's Trevor Sikorski said that a deep EU
recession would still see a shortage of some 500 million tonnes.
"It is unlikely that the economic downturn will change the
fundamental balance of the market," he said, adding that
fuel-switching could also provide price support.
"EUAs could definitely go lower but there would be some
support from fuel-switching at around 15 euros."
Cheaper prices for high-carbon fuels such as coal and oil
would encourage power generators to switch from cleaner natural
gas, which could force utilities to buy more EUAs.
"(The carbon price) depends on how much further coal falls.
Coal demand in China has fallen through the floor. If coal keeps
coming down, it is very difficult for people to ignore it as a
fuel," said Alessandro Vitelli, a director at IDEAcarbon.
The market is also supported by EU policy, which requires
companies generating CO2 emissions to buy permits.
"We shouldn't be too worried as policy support holds the
market up. The EU said there was no 'sunset clause' for the EU
ETS," said Vitelli.
"It's there and it's staying."
For additional news and analysis on the global carbon
markets, go to http://www.communities.thomsonreuters.com
(Editing by William Hardy
- 
- 
- 
Welcome,
Guest!
News
