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Barclays Cuts CO2 Forecasts as Market Is ‘Awash With Supply’

Barclays Plc cut its forecast for carbon prices because the market is “awash with supply” of permits and credits, said London-based analyst Trevor Sikorski.

European Union carbon permits will average 12 euros ($16.39) a metric ton next year, 20 percent less than a Sept. 29 estimate, while the United Nations offset price was cut 23 percent to 7.75 euros, Sikorski said today in an e-mailed research note.

“The market is in a dark place, being awash with supply and facing big European macro-economic risks,” he said. “With Italy quickly moving into difficulties as its borrowing costs approach 7 percent, the outlook for the broader European economy has continued to deteriorate.”

Nations in the EU program will boost sales from new-entrant reserves, set aside for new factories and power stations expected to start operating in the five years through 2012, by 9.2 percent to 107 million tons next year from 98 million tons this year, Sikorski said.

There will be an additional 20 million tons sold this year from the reserve for the eight years through 2020, followed by 250 million tons next year and 50 million tons in the first quarter of 2013, he said. This year’s volumes will be the first for the program’s phase three, which begins in 2013.

Supply of UN Certified Emission Reduction offset credits may increase next year after more than doubling this year to about 300 million tons, Sikorski said. The EU market may be 1.6 billion tons oversupplied in the five years through 2012, 16 percent of total emissions in the period of 10.1 billion tons, he said.

Spot carbon prices could possibly fall to the 8 euro-a-ton-level seen in 2009, assuming factories with surplus allowances struggle to get finance from banks as the sovereign-debt crisis worsens, Sikorski said. Allowances for December fell 1 cent a ton today to 10.11 euros on the ICE Futures Europe exchange in London as of 12.04 p.m.

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