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Analysts nudge EU carbon price forecasts higher but warn on Ukraine risks

Analysts nudge EU carbon price forecasts higher but warn on Ukraine risks
Analysts nudge EU carbon price forecasts higher but warn on Ukraine risks   -   Copyright  Thomson Reuters 2022
By Reuters

By Susanna Twidale

LONDON – Analysts have raised their European carbon market average price forecasts for 2024 as high gas prices encourage electricity generators to use more polluting coal-fired power, but warned the crisis in Ukraine could curb industrial output and dampen demand for permits.

EU Allowances (EUAs) are expected to average 85.22 euros a tonne in 2022 and 94.23 euros in 2023, a Reuters survey of eight analysts showed. That is up 1.3% and 2.7% respectively from forecasts made in January.

Forecasts for 2024 prices increased 4% to 97.90 euros/tonne.

The European Union’s Emissions Trading System (ETS), forces manufacturers, power companies and airlines to pay for each tonne of carbon dioxide they emit as part of Europe’s efforts to meet its climate targets.

“With elevated gas prices and uncertainty over Russian gas supply we expect coal fired power plants to be running at full steam across Europe, keeping up demand for EUAs from utilities, Refinitiv lead carbon analyst Ingvild Sorhus said.

High gas prices make it more economical for some generators to burn coal, which produces around double the amount of carbon dioxide emissions as gas plants.

Sorhus and other analysts however warned uncertainty remains over Russia’s invasion of Ukraine and the impact this could have on energy prices and industrial demand across Europe.

“Persisting high energy prices are posing risk of the destruction of industrial demand which – in turn – is bearish for EUA prices,” said Goda Aglinskaite, Market Analyst at ClearBlue.

On average however the forecasts show expectations prices will increase over the next few years from current levels around 84.00 euros a tonne .

“The EU ETS remains fundamentally structurally bullish due to the Fit for 55 policy… hence our forecast for rising EUA prices over the coming years,” said Benjamin Lee, analyst at Energy Aspects.

EU countries and the European Parliament are negotiating a raft of green measures this year, called the Fit for 55 policy designed to cut net EU greenhouse gas emissions 55% by 2030 from 1990 levels.