Current low EU carbon prices are an indication that the market does not believe lawmakers will manage to fix the cap-and-trade system, according to Peter Terium, CEO of German utility RWE, the biggest emitter in the scheme.
“The market does not believe it is going to happen because CO2 prices are still at an all-time low,” he told the Business and Climate Summit in Paris on Wednesday, Reuters reported.
He added that this is a signal that the market doesn’t think politicians are able to get the number of EUAs that are auctioned in line with the need to get a sensible carbon price.
RWE is by far the biggest emitter in the EU ETS, each year discharging around 9% of the entire EU ETS emissions of some 1.8 billion tonnes of CO2, mainly from its coal-fired power plants in Germany.
Terium’s reported remarks appear to run counter to both market developments and the views of most other market participants, yet reflect a concern among some market watchers that lawmakers’ reform efforts repeatedly fall short of what is needed to drive substantial emission reductions.
Benchmark front-year EUA prices are trading well above their all-time low, though are still way off their peak of above €30 in 2008.
EUA prices hit an all-time low below €3 early in 2013 amid a massive oversupply, but since then EU lawmakers have passed backloading reforms to delay auction supply and are in the final stages of passing MSR reforms for more permanent supply curbs from 2019.
EUA prices are currently trading at around €7.50, having climbed in anticipation of the MSR getting passed, though they haven’t moved higher since lawmakers struck a decisive deal to agree the measure earlier this month.
Still, some 76% of 457 EU market observers and participants surveyed over the first quarter by Thomson Reuters Point Carbon said they expected prices to rise to at least €9 by 2020, with more than half predicting EUAs would top €11.
More than two-thirds of respondents in the Point Carbon survey expected the EU ETS will “continue to be the main instrument for EU climate policy.”
The price expectations are much lower than the €16.80 average predicted in a poll of 10 market analysts taken on Apr. 15, with some analysts predicting they could top €20 or even €30 by the end of 2020.
However, some analysts have said there remains much uncertainty in the market ahead of further reform proposals in an EU ETS review, due before August.
In particular, the MSR deal left open the possibility that as many as half of up to 1.8 billion EUAs due to be put directly in the reserve could eventually be sold to benefit big industrial emitters.
By Ben Garside – ben@carbon-pulse.com
