U.N. carbon price forecasts to 2020 cut further : Reuters poll

Written on 2012/10/04 by Nina Chestney

Analysts cut their price forecasts for United Nations' carbon permits to 2020 further on Tuesday as over-supply continued to put pressure on prices, a Reuters poll of 14 analysts showed.

U.N. carbon permits, called certified emissions reductions (CERs), have lost more than 70 percent of their value over the past year on the continued over-supply of permits, low demand due to the global economic downturn and concerns about restrictions on CER use in other countries' carbon markets.

Prices for benchmark CERs extended losses to fresh record lows below 1.50 euros ($1.93) a tonne last month but have since recovered slightly to over 2 euros.

Average forecasts from 2012 to 2020 have fallen each month across all the CER contract years since May's poll.

Over-supply looks set to continue. CER issuance is expected to almost double this week after a slow September. Some analysts have warned stronger-than-expected injections of supply into the market could send prices back below 2 euros.

Barclays Capital analysts said last week over-supply and stagnant demand will ensure CER prices remain below 3 euros indefinitely, even if European Union governments intervene in the EU's Emissions Trading System (ETS) to help boost prices.

CERs trade under the U.N.'s Clean Development Mechanism. Under the scheme, governments and companies in developed countries can earn carbon credits by investing in low-carbon projects in developing countries.


A certain number of CERs, sometimes called offsets, can be used by EU companies to comply with the ETS.

"With only the EU ETS currently buying these offsets and most participants wanting to hold at least some switching allowance to Phase 3 (the 2013-2020 trading period), offsets are having to compete to be sold into the market," BarCap analysts said.

"With this competition intensifying as we move through the next eight months to April of next year, there really seems to be little way back for (CER) prices."

The average forecast for CERs in the second half of this year was 2.50 euros a tonne on Tuesday, down 16 percent from the previous poll in September, while the 2013 forecast was cut by 22 percent to 3.44 euros.

The average forecast for 2014 was down 18.5 percent at 4.70 euros, while the 2015 estimate was cut by 18.3 percent to 5.43 euros. The forecast for Phase Three was at 5.41 euros, down 5.3 percent from last month.

Meanwhile, average forecasts for EU carbon permits called EU Allowances (EUAs) were little changed.

EUA prices in the second half of the year averaged 7.60 euros a tonne, just 0.30 percent lower than last month's poll. The average EUA forecast in 2013 was 0.82 percent lower at 9.07 euros.

Forecasts for beyond 2013 were higher, however. EUAs in 2014 were seen up 1.19 percent at 11.30 euros, while 2015 EUAs were seen 2.6 percent higher at 11.59 euros. The average for the 2013-2020 trading period was up 2.23 percent at 11.49 euros. ($1 = 0.7773 euros)

(Editing by James Jukwey)