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Barclays Boosts Phase III EU CO2 Forecast on Rules (Update1)
2010-08-05 16:03:28.95 GMT
(Adds utility hedge information in sixth paragraph.)
By Mathew Carr and Catherine Airlie
Aug. 5 (Bloomberg) -- Barclays Capital raised its price
forecast for European Union emission permits for the eight years
through 2020 by 14 percent because a plan to hold auctions may
increase volatility around 2014.
EU carbon dioxide permits may average 40 euros ($53) a
metric ton in the period, the third phase of the program,
London-based analyst Trevor Sikorski said today in an e-mailed
research note. That's compared with a forecast of 35 euros a ton
made on June 23.
The Brussels-based European Commission's plan to auction
emissions permits removes supply needed by utilities around 2014
"as the market begins to tighten and its ability to provide
forward hedges begins to be eroded," Sikorski said in the
report. "Such a formulation seems both counter-intuitive and
flawed," he said. The EC regulates the trading program.
Most allowances in the EU program, the world's largest
carbon market by traded volume, will be sold by auction to
utilities after 2012. They are largely granted for free in the
five years starting 2008, the second phase of the program.
"The formulation seems to be set out to soften price
volatility in the next two years before maximizing price
volatility across phase 3," Sikorski said. "This is a curious
development from the commission, which just strengthens our
opinion that the market would be well served by having an
independent body to manage the future release of primary
liquidity into the market."
Hedging for 2013
Government auctions of carbon-dioxide permits this year for
the second phase may be enough to cover power stations needs for
2013 accounting for the contracts that utilities have already
bought in the futures market, Sikorski said. "There may only be
another 30-40 million tons of hedging to come from the utilities
for the post-2012 shorts this year."
Britain and Germany still have about 30 million tons of
emissions allowances to auction, Sikorski said. "Government
injected liquidity could be able to accommodate much, if not
all, of that hedging."
Sikorski cut his forecast for the second half of this year
by 6.3 percent to 15 euros a ton. EU permits for delivery in
December were little changed, slipping 1 cent to 14.32 euros a
ton as of 4:15 p.m. on London's European Climate Exchange.
Prices have gained 14 percent this year.
For Related News and Information:
Emission market news NI ENVMARKET <GO>
Today's top energy stories ETOP <GO>
European power-markets home page EPWR <GO>
--Editors: Raj Rajendran, Jonas Bergman.
To contact the reporter on this story:
Mathew Carr in London at +44-20-7073-3531 or
m.carr@bloomberg.net
Catherine Airlie at +44-20-7073-3308 or
cairlie@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net
