POLL: Analysts see annual 15% EUA price rise through 2020, but diverge on MSR views

Published 13:52 on April 15, 2015  /  Last updated at 14:47 on May 7, 2015  /  EMEA, EU ETS

European carbon prices are poised to climb and finish this quarter at around €8 before heading higher towards year’s end, a poll of 10 analysts conducted by Carbon Pulse showed, which also highlighted the disparity in views regarding the upcoming reform of the EU ETS.

European carbon prices are poised to climb and finish this quarter at around €8 before heading higher towards year’s end, a poll of 10 analysts conducted by Carbon Pulse showed, which also highlighted the disparity in views regarding the upcoming reform of the EU ETS.

Agreement on the final details of the Market Stability Reserve and a reduction in allowance supply this year due to backloading will combine to help front-year EUAs end 2015 at €8.90, or some 30% above current levels near €6.85, according to the mean of the analysts’ estimates.

After that, EUAs are seen rising further for the rest of the decade at an average annual rate of 15%, with some analysts predicting they could top €20 or even €30 by the end of 2020 – prices reminiscent of pre-recession levels.

However, median estimates were noticeably far off from the mean forecasts, highlighting the analysts’ markedly different views and their assumptions relating to the EU scheme’s upcoming reform.

“With the MSR and (this summer’s) review of ETS Directive, there’s still such uncertainty in the market,” said Vertis analyst Bernadett Papp, citing a reason for reluctance among many analysts to make predictions for EUA prices beyond this year.

EU lawmakers are expected to reach agreement on the MSR in trilogue talks before July, with most eastern European countries pushing for a 2021 start, and western governments and MEPs lobbying for an earlier date.

“Having a higher price estimate in Q2 (than year-end) might look strange, but in the case of a preliminary agreement on the MSR in trilogue before June, I expect a classic ‘buy on rumour, sell on fact’ effect, with a (2015) peak at the end of June,” said Anatoly Stolbov with Prague-based Virtuse.

Polish climate envoy Marcin Korolec this week said the EU Council, which last month agreed a common position backing a 2021 start date, would not budge on the matter. However Latvia, chairing governmental discussions, has said it will be more difficult to secure a common position necessary to resume trilogues as Germany in particular is still pushing for an earlier start.

The next trilogue talks between Council, Parliament and the European Commission are scheduled for May 5 and May 26.


As much of their EUA price views depend on assumptions relating to the MSR, the analysts were also polled on their expectations for the mechanism’s start date, and whether hundreds of millions of EUAs from backloading and unallocated Phase 3 quotas would be placed in the reserve.

The 10 analysts were split on their outlooks for the start date, but there was total consensus as to the future of the 900 million backloaded EUAs withheld from government auctions in 2014-2016.

“Backloaded allowances have to be put in (the MSR). It would not make a lot of economic sense to do otherwise given how things are going,” said Paolo Coghe, an analyst at France’s Societe Generale.

“But with the unallocated permits it will be a compromise (between member states and parliamentarians), as nobody gets to win all the points,” he added, referring to the unclaimed EUAs from the EU’s New Entrants’ Reserve, unallocated allowances left by mothballed or closed installations, and government auction quotas that go unsold by the end of the current trading phase (2013-2020).

Analysts said the fate of those permits – which could total upwards of 800 million units – could help unblock the stalemate over the reserve’s start date.

Several of those surveyed said to quell opposition, some EUAs could be placed in an a Phase 4 fund to help industry innovate, while others could be used to ward off potential electricity price rises in eastern Europe as a result of the MSR and dearer carbon.

James Cooper of Bloomberg New Energy Finance predicted that of a total 690 million unallocated allowances, 390 million would be injected into the MSR and the remaining 300 million sold as part of an industrial innovation fund.

In contrast, Thomson Reuters Point Carbon said it expects all of a predicted total of 376 million unallocated allowances from Phase 3 to be sold between 2021 and 2023 to help industry innovate.


And while Poland’s Korolec claimed the EU Council’s agreed position on the MSR’s start date was set in stone, some analysts weren’t so sure.

“Germany’s not happy with it, so progressive countries will try to overcome the 2021 start by aligning their position to Parliament. That will shift the focus to which countries from the 2021 camp, holding on to Poland’s position, are willing to give in,” added Point Carbon’s Marcus Ferdinand.

“One thing is clear: the negotiations, even (between the member states), are far from over,” he added.

Analysts have tended to overestimate EUA price gains in recent years as the market’s massive oversupply has made forecasting more complex. Some predicted in 2014 that backloading would have already pushed prices above €8 this year.

Below is a table of the 10 analysts’ individual forecasts for front-year EUA prices for the end of Q2 and every year through the rest of the EU ETS’ third trading phase (all prices in €).  Also included are views on the MSR’s start date, and whether backloaded (BL) or unallocated (UA) EUAs would be placed in the reserve.

Q2-15 2015 2016 2017 2018 2019 2020 MSR start BL? UA?
BNEF 8.00 10.00 N/A N/A N/A N/A 33.00 2021 Y Some
Commerzbank 7.30 9.00 9.50 N/A N/A N/A N/A 2021 Y N/A
Consus 7.21 7.50 8.07 8.13 8.78 9.51 10.30 2021 Y Y
EnergyAspects 7.50 8.50 10.50 14.00 14.00 14.00 15.00 2019/2021 Y Y
ICIS-Tschach 9.30 11.50 14.50 N/A N/A N/A N/A Pre-2021 Y Some
Nomisma 7.34 8.17 8.60 9.08 9.83 10.77 11.62 2021 Y Y
PointCarbon 8.00 8.90 13.80 16.00 18.10 19.80 21.20 2018 Y N
SocGen N/A 8.32 8.49 8.71 8.98 9.29 9.64 N/A Y N/A
Vertis 7.50 8.50 N/A N/A N/A N/A N/A 2019 Y Y
Virtuse 9.70 8.70 N/A N/A N/A N/A N/A 2019 Y N
Average 8.00 8.90 10.80 11.00 11.60 14.40 16.80
Median 7.50 8.60 9.50 9.08 9.83 10.77 13.31


By Mike Szabo – mike@carbon-pulse.com