Photographer: Matthew Lloyd/Bloomberg

Brexit Concerns Prompt Cut in BNEF’s Outlook for Carbon Prices

  • Bloomberg New Energy Finance lowers forecasts for EU market
  • Carbon price seen suppressed until 2019 start of market fix

Uncertainty over Britain’s future participation in the European Union carbon market led Bloomberg New Energy Finance to cut its outlook for pollution prices by 14 percent following the decision by U.K. voters to leave the EU.

BNEF analysts forecast on Wednesday that allowances to discharge carbon dioxide in the EU will cost 5.90 euros a metric ton on average in 2016-2019, compared with the previous forecast of 6.90 euros in February, four months before the U.K. referendum won by supporters of Brexit. Britain is the 28-nation bloc’s third-biggest emitter.

The new projection would still represent an increase from the current level of around 4.60 euros. Carbon prices have declined 7 percent since the British vote in June.

“While we believe that the country will ultimately decide to stay in the EU Emissions Trading System, we expect downward pressure on the price will persist until the U.K.’s future in the scheme is determined,” BNEF analysts said in a research note.

Prices in the world’s biggest cap-and-trade program are projected to begin rebounding after the EU starts implementing supply controls in 2019 under the market stability reserve, a fix agreed by national governments to boost the cost of pollution. BNEF forecasts that in 2021-2025 the average emission price in Europe will jump to 23 euros, still 3 euros lower than it projected in February.

The EU ETS market, the bloc’s flagship climate-protection tool, imposes decreasing pollution caps on about 12,000 installations owned by manufacturers and utilities. Policy makers expected a price of around 25 euros to 30 euros when the system was started 11 years ago, a level they said would encourage a shift to green technologies.

Prices in the program defied their expectations, slumping around 80 percent in the past eight years as an economic crisis cut industrial output and exacerbated a glut of allowances.

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