KARLSRUHE, Germany, August 21,
2014 /PRNewswire/ --
Tough times ahead for industrials
with ETS compliance obligations, as reduced auction volumes and
back-loading mean carbon prices set for sustained increase,
reaching double digits by 2015
With prices hitting a 5 month high of €6.50 today, established
energy intelligence provider ICIS Tschach predicts a sustained
increase in the price of European Trading Scheme (ETS) allowances.
On current trajectories, prices are expected to hit double digits
and a two-year high by year's end. Such an increase would be a
worrying trend for those with significant compliance obligations,
especially large, carbon-intensive industrials.
Since the beginning of the EU ETS's Phase 3 compliance period at
the start of 2013, the market has been oversupplied with
allowances, leading to a sustained period of trading within a €3-6
corridor. Now however, a number of factors are converging to push
prices consistently higher.
"After all the volatility and exceptional trading activity in Q1
2014, we are seeing the effects of back-loading really start to
take hold now" said Philipp Ruf,
Lead Analyst, EU Carbon Markets at ICIS. "Next to the reduced
auction volume, the appetite of industrials to sell banked length
is rather muted while the demand from utilities seems constant. All
these factors, together with the potential momentum derived from
the policy discussion around the 2030 emission reduction target and
the Market Stability Reserve, suggest a sustained bullish corridor
for carbon prices."
Higher carbon prices represent a business risk to all sectors
where there is an emissions compliance requirement. However, the
biggest effect is likely to be felt in the carbon-heavy industrial
sector.
"Up to now, industrials have enjoyed a huge number of free
allowances under the scheme and could easily cover their
obligations and maybe even sell some allowances at a profit," notes
Jan Frommeyer, Director of Market
Analysis at ICIS. "Now the free allowances are scarcer, and most
carbon-heavy industrials will face a shortage of allowances in the
near future. That's not so risky with prices as low as they have
been, but as they edge higher it becomes more and more of a
problem."
ICIS predicts that carbon prices will enter double digits by the
start of 2015 for the first time since 2012. However, with further
planned political interventions designed to keep prices high,
prices of above €20 are perfectly feasible in the third trading
period. Such a scenario would represent a significant risk to large
industrials and an intelligent and informed hedging strategy will
be vital to protect profits.
"It's not all about the risks though," adds Frommeyer. "For
those that proactively manage their exposure now there's a real
opportunity to gain a competitive advantage over rivals with less
effective hedging strategies."
Notes to editors:
About EU ETS
Launched in 2005, the EU's Emissions Trading Scheme is the
cornerstone of the EU's policy to combat climate change.
Large carbon emitters are required to surrender an allowance for
each tonne of CO2 emitted. A certain number of free allowances is
awarded to each participant and more are released at auction.
Allowances may then be traded as required.
The EU ETS was from the start designed as a multi-national -
with all EU member states participating in the system - as well as
a multi-sector system. In 2013 more than 11,000 stationary
installations in 31 countries participated in the scheme. Covered
by the EU ETS are carbon dioxide (CO2) emissions from power and
heat generation, energy-intensive industry production and
commercial airlines as well as nitrous oxide (N2O) and
per-fluorocarbons (PFCs).
The system covers around 2bn tonnes of carbon emissions (around
45% of the EU's greenhouse gas emissions in 2013) and the average
price for a European Union Allowance (EUA) was €4.50 in 2013.
About ICIS
ICIS Tschach Solutions provides information and intelligence to
every participant in the carbon markets. ICIS Tschach Solutions
employs a unique combination of quantitative and qualitative
research and expert opinion to deliver detailed insight into
emissions and carbon trading schemes, and identifies important
commonalities and disparities. Our Timing Impact Model provides
clients with a more rounded perspective than conventional
approaches and helps create competitive advantage. We offer clients
a complete and transparent analysis of market dynamics, including
emerging upside or downside risks to carbon prices and the
assumptions on which these are based.
ICIS has more than 30 years' experience providing pricing
information, news, analysis and consultancy to buyers, sellers and
analysts of energy and related commodities. In 2013 it acquired
Tschach Solutions to add specialist carbon trading services to its
portfolio. ICIS Tschach Solutions is based in Karlsruhe.
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