Industrial-Gas Offsets Ban May Not Lift EU Carbon Price, New Energy Says

A ban on some industrial-gas offsets may not do much to boost European Union carbon prices because supply is forecast to exceed demand coming mainly from power utilities, analysts at Bloomberg New Energy Finance said.

Assuming a ban is introduced in 2013, supply from auctions and Certified Emission Reductions from the United Nations would average 82 million metric tons a month in that year, compared with average demand of 78 million tons a month, London-based analysts including Clemens Tummeltshammer said yesterday by e- mail. With no ban in place, supply would rise by 8 million tons a month to an average of 90 million tons.

The accumulated oversupply in the EU market would reach 246 million tons by the end of 2014 assuming industrial-gas credits are restricted, the analysis shows. The surplus will be higher with no ban, according to New Energy Finance’s carbon model, which considers supply and demand in the traded market including utility buying to match forward-sales of power.

The EU is giving away about 97 percent of allowances in the five years through 2012, according to figures from Deutsche Bank AG. The European Commission, regulator for the 27-nation bloc, is considering exclusion of UN-sponsored credits related to industrial gases including hydrofluorocarbons and nitrous oxide starting in 2013.

The EU wants to present its proposal to member states “as soon as possible,” Climate Commissioner Connie Hedegaard said Nov. 19.

Assuming there is a ban on some UN offsets, EU carbon permits may jump to 24 euros ($33) a metric ton by 2013, Emmanuel Fages, an analyst for Orbeo in Paris, said in an Oct. 25 research note. Orbeo is the carbon venture of Rhodia SA and Societe Generale SA.

Barclays Boosts Forecast

Carbon for December 2013 fell 0.4 percent today to 16.85 euros a ton on the ICE Futures Europe exchange in London. Prices for 2013 may be 17 euros a ton, assuming the bloc doesn’t limit offsets or change its 2020 emissions target, which aims for a 20 percent reduction from 1990 levels, Fages said.

Barclays Plc’s investment bank today increased its forecast for UN Certified Emission Reduction credits for 2012 by 11 percent to 20 euros a ton from 18 euros, citing the potential offset ban. It cut its estimate for the UN discount relative to EU allowances that year by 20 percent to 8 euros a ton.

The potential ban “should broadly be seen as another attempt by the European Commission to tighten up the current liquidity in the market, with a view on higher prices,” Trevor Sikorski, a London-based analyst at Barclays Capital, said yesterday in an e-mailed research note.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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