Barclays Raises 2013-2020 EU Carbon Permit Price Forecast by 13%

Barclays Plc raised its price estimate for European Union carbon permits in the third phase of the bloc’s carbon market by 13 percent, citing plans to delay auctioning some allowances from next year.

EU permits in the eight years through 2020 will average 9 euros ($11.65) a metric ton, up from an estimate of 8 euros previously, Trevor Sikorski, an analyst at the bank in London, said in a report today.

“We maintain our forecast that 700 million tons will be back-ended but assume that 60 percent of those volumes are taken out of 2013,” Sikorski said. “We now assume the volumes only come back in from 2018 onwards.”

The European Commission, the bloc’s regulator, is seeking to delay some supply of permits to boost carbon prices, which fell to a record 5.99 euros on April 4. The market had a glut of 950 million permits at the end of 2011, and this surplus is “growing fast,” Jos Delbeke, Director General for Climate at the European Commission, said in Brussels on Sept. 26.

Prices for EU permits next year will average 8.50 euros, up from the previous forecast of 7.50 euros, Sikorski said.

“We remain bearish on the fourth quarter and the first quarter of 2013 but note that a large set-aside could create demand for the heavy EUA sales profile we expect,” he said.

The EU market will be 1.6 billion tons oversupplied by the end of 2012 and the glut won’t disappear until 2016, Sikorski said. The 2012 oversupply reflects a surplus of 614 million EU permits, and the use of 1 billion United Nations carbon offsets, according to the report.

UN Offsets

UN offset prices in the third phase of the EU market will average 1.50 euros, down from the previous forecast of 3.50 euros, Sikorski said.

“The shrinking prospects of future demand suggest that there is little way back for credits” from the UN’s Clean Development Mechanism, he said. UN offset prices have fallen 77 percent in the last year.

The EU has a cap on the use of CERs of 1.8 billion in the 13 years through 2020. The UN has issued 1.02 billion credits since October 2005.

To contact the reporter on this story: Alessandro Vitelli in London at avitelli1@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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