French investment bank Societe General increased its EU carbon price forecasts for the first time since March, citing the effect of supply-curbing reforms and optimism over prospects that a global climate deal will be struck in Paris in December.
In a note to clients emailed late Wednesday, the bank said it expects the benchmark Dec-15 EUA futures to climb to €8.80 by their expiry in mid-December, up 6% from its previous forecast of €8.32 and above today’s settlement of €8.28.
Analysts at the bank predicted prices would climb to average €9 in 2016, rising to €10.22 in 2020. That’s up from respective projections of €8.49 and €9.64 made in March.
“The current price environment for EUAs sees lower volatility and a slowdown in trade volume as well as relenting sentiment. However, much as before, we see prices increasing on the back of the strong and concrete political will behind structural reforms for the EU ETS,” the note said.
The successive passing into law of backloading and MSR reforms over the past two years and last year’s agreement that the EU ETS will be the bloc’s main policy to meet its 2030 target to cut overall emissions 40% under 1990 levels is translating into price-boosting market optimism, SocGen said.
But citing results from their ‘change point analysis’ and put/call ratio model, the analysts said that the market’s bullish sentiment is now “cooling off”.
While not impacting on EU policies directly, the analysts said they expect a successful global agreement will give lawmakers more confidence in the market to deliver climate policy goals.
“Since the EU climate policy targets for 2030 do largely overlap with the forthcoming Phase 4 of the EU ETS, we anticipate that the news, commentary and analysis process surrounding (COP-21) will be one of the chief drivers of carbon prices over the next three months,” they added.
“Without wanting to make too much of a coincidence of coincidences, we believe that such resilience in the carbon market is directly related to the goals, commitments and visibility that the COP-21 UN conference has already been adding, and will continue to add, to the emissions market.”
“The EU-ETS will be part of the climate change solution, of that there is no doubt.”
By Ben Garside – firstname.lastname@example.org