EU Nations May Seek Funds From Carbon ‘Cash Cow,’ Goldman Says

European Union governments may see the bloc’s carbon market as a way to raise cash, said Goldman Sachs Group Inc. (GS)

“The EU emissions trading system could offer another opportunity for governments across Europe to raise funds, and at the same time bolster their own green credentials,” Fred Barasi, an analyst in London, said yesterday in an e-mailed research note. The nations, struggling financially, may regard the carbon market as a “cash cow” after raising taxes from utilities for climate protection the past 18 months, he said.

Carbon permits for December have plunged 48 percent this year and fell 4.4 percent today to 7.47 euros ($10.04) a metric ton on the ICE Futures Europe exchange in London as of 1:37 p.m. Increased supply of offset credits and the proposed first sales of 2013 EU carbon allowances have helped drive prices lower, as has muted demand because of slow economic production during the bloc’s sovereign-debt crisis.

EU carbon permits may rebound to 15 euros a metric ton by 2013, Barasi said. That’s 40 percent less than an earlier forecast, he said.

The U.K. has set a precedent for intervening in the market when it announced a price floor in March, Goldman Sachs said. “The level at which the U.K. carbon price floor will start, 16 pounds ($25) a ton in 2013, is currently more than double the forward-market price of 7.50 pounds.”

The U.K. Treasury estimates it will raise 740 million pounds from the power sector in 2013 through the measure, rising to 1.41 billion pounds by 2015, the bank said.

On Dec. 2, the European Commission, the Brussels-based regulator of the EU market, delivered 300 million tons of phase three allowances to the European Investment Bank, which need to be sold by Oct. 2. The third phase of the greenhouse-gas program starts in 2013 and runs through 2020.

EU governments might agree to temporarily “set aside” some allowances to boost prices and create a shortage around 2014, earlier than expected, Barasi said. Current rules would create a shortage around 2017, he said. The bloc may alternatively tighten its 2020 emissions target or introduce a carbon floor price to boost prices, he said.

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 at sev@bloomberg.net

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