(BN) Barclays Cuts CO2 Price Forecasts on Lower Emissions, New Supply


Barclays Cuts CO2 Price Forecasts on Lower Emissions, New Supply
2011-01-11 15:33:53.258 GMT

By Catherine Airlie
Jan. 11 (Bloomberg) -- Barclays Plc scaled back its 2011
price forecast for European Union carbon, predicting lower
emissions from factories and power stations and more permits
coming to market from a reserve for new projects.
Barclays Capital, the London-based investment bank,
forecasts EU permits will average 16.50 euros ($21.30) a metric
ton in the first half of the year, analyst Trevor Sikorski said
in a research report e-mailed today. That's 8 percent less than
he estimated in November. Prices in the second half of 2011 may
be 20 euros, down from his earlier forecast of 22 euros.
Sikorski also posted his first forecasts for 2013,
predicting an average price of 30 euros for EU permits and 22
euros for United Nations credits eligible in the EU system, the
world's largest cap-and-trade program. Carbon prices will rise
as utilities are required to buy most of their allowances
starting in 2013 after receiving most of them for free since
2005, Sikorski said.
This will alter "forward hedging strategies and raise
volatility in the market sooner rather than later," Sikorski
said. "While these stronger carbon prices and the return of
trend volatility should help renew some interest in the market,
2011 is likely to be just the warm-up act for some real
volatility in 2012," he said.
EU permits for December traded between 12.95 euros and
16.92 euros a ton last year on London's ICE Futures Europe
exchange. They were up 0.5 percent at 14.30 euros a ton at 3
p.m. The low volatility last year reduced the carbon market's
appeal to investors and emitters, he said.

'Political Failure'

"The added political failure to introduce meaningful
carbon prices in other geographies has resulted in scaled-down
interest in the market, with people and money exiting,"
Sikorski said.
Barclays cut its 2011 price forecasts after raising its
estimate of how many surplus allowances will be available in the
next two years to 468 million tons, 13 percent more than before.
Barclays also reduced its estimate of how much greenhouse gases
European factories and power stations will release.
Sikorski cited a "slight writedown in the macroeconomic
picture and the outlook for industrial output." He also said
more permits from the New Entrants Reserve would enter the
market, even though some nations have pledged to cancel any
surplus permits.
"We have consistently assumed that most of the NER would
come to market," Sikorski said in the report. "We still expect
this is the case, but now expect even those states that
expressed an intention of cancelling the volumes to reconsider
that position, given the precarious fiscal situations of most EU

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--Editors: Mike Anderson, John Buckley.

To contact the reporter on this story:
Catherine Airlie in London at +44-20-7073-3308 or

To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net