Industrial gas clamp-down seen boosting EU carbon price

Price of 2010 EUAs forecast to rise by two-thirds as European Commission prepares new post-2012 controls

The price of European emission allowances (EUAs) could rise by two-thirds to at least €25 per tonne by the end of the year, Deutsche Bank said in a report on 31 August.

The price of December 2010 EUAs has been hovering around €15/t since early 2009. As recently as April Deutsche Bank was forecasting only a modest increase to €18-20/t by the end of 2010.

Indications that the EU may take a tougher line on EU ETS firms' use of UN CER carbon credits in place of EUAs after 2012 are the main new driver identified by the bank.

This can have an impact on current EUA prices because allowances issued in phase II (2008-12) can be banked into phase III (post-2012). Expectations of higher prices in phase III can therefore feed back to the present.

The European Commission mooted introducing qualitative restrictions on CERs post-2012 in a communication in May. An enormous controversy has since blown up over projects to destroy the chemical HFC-23 - responsible for delivering over half of all CERs to date.

In a statement on 25 August, EU climate commissioner Connie Hedegaard said she had asked her services to prepare “a proposal for a measure to introduce further quality restrictions on the use of credits from industrial gas projects in the post-2012 EU ETS”. Deutsche Bank expects concrete proposals in the autumn.

Carbon traders have expressed alarm at the potential impacts, not only on HFC-23 destruction projects, but also on other industrial gas abatement projects, for example involving PFCs or N2O. Environmentalists claim that many of these other industrial gas projects, too, lack environmental integrity.

In 2009 EU ETS firms surrendered nearly 82 million CERs in place of EUAs, accounting for 4.3% of all surrenders against 2009 emissions. Under EU ETS rules agreed last year, in phase III operators will be able to use CERs and related ERU credits for up to half of the overall cap of emissions between 2008 and 2020.