EU CO2 Price Should Be More Than Three Times Higher, BNEF Says

Carbon permits in Europe’s cap-and- trade program are “underpriced” and should be more than three times higher to achieve the region’s post-2020 emissions- reduction goals, Bloomberg New Energy Finance said.

“Looking at how the scheme will evolve up to 2020 and beyond, the price today should be 40 to 60 euros ($54.50 to $81.70) a metric ton of carbon dioxide, compared to the current price of around 12 to 13 euros,” New Energy said today in an e- mailed statement about a Sept. 6 report. “By 2020, prices will need to rise to 60 to 90 euros.”

European Union carbon allowances for delivery in December have lost almost 16 percent this year because of an oversupply amid recession, concerns about economic growth and a sovereign- debt crisis in the region. The contract rose 3 cents to 11.94 euros a ton on the ICE Futures Europe exchange at 10.26 a.m. in London. One allowance carries the right to emit one ton of carbon dioxide.

“While there is a lot of surplus sloshing around at the moment, that won’t last forever,” Guy Turner, director of commodity research at New Energy Finance, said by phone from London. When the market starts noticing the looming shortage, “the cost of reducing emissions in Europe will be much higher than people think,” he said in the statement.

The EU’s emissions program, the world’s largest, imposes pollution limits on more than 11,000 utilities and factories, including Electricite de France SA, Europe’s biggest power generator, and Royal Dutch Shell Plc, the continent’s largest oil company. The constraints lead to a cap in 2020 that will be 21 percent below 2005 levels and continue to decrease by 1.74 percent annually after 2020.

Forecast Deficit

The forecast deficit of around 1.97 billion permits from 2008 to 2020 will be partly met by imports of international carbon credits, resulting in a net shortage of around 300 million tons, New Energy said.

After 2020, fundamentals of the EU cap-and-trade will change, it said. The system is likely to have a deficit of around 170 million tons in 2013, rising to 380 million tons in 2020 and 660 million tons in 2028, according to the report.

As access to low-cost emission-reduction measures starts to run out, regulators may curb the allowed use of international credits, pushing the carbon price to 100 euros per ton, New Energy said.

The report said the cost of meeting emissions targets will reach 100 euros a ton by 2024 without any access to international credits, and 65 euros a ton with access to offsets. “Discounted back to 2011, the prices are 64 euros and 42 euros, respectively,” the report said.

To contact the reporter on this story:

Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

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

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