* EU ETS value likely to fall to $100 bln this year
* Carbon permits lose value but volume to show slight rise
* Utilities winners, small firms losing out
* 2013 prices seen slipping further
* EU states weighing plan to help support prices
By Nina Chestney
LONDON, Dec 20 Europe's carbon market is set to
lose a third of its value this year as an oversupply of permits
worsened, battering average prices and increasing pressure on
European governments to provide support.
The world's biggest carbon scheme, the European Union's
Emissions Trading System (ETS), was valued at a record $148
billion last year by The World Bank but analysts say that is
likely to have fallen to around $100 billion, a level not seen
"The EU market's value in 2012 is set to decrease by around
30 percent, to near $100 billion," said Matteo Mazzoni, carbon
analyst at Nomisma Energia, citing a drop of over 40 percent
year on year in average EU carbon prices.
Analysts at Thomson Reuters Point Carbon also see a 30
percent drop in value. According to their preliminary estimates,
the ETS was worth around 50 billion euros ($66.07 billion) in
2012, down from 76 billion euros last year.
The value of trade over exchanges, which forms the bulk of
activity, was down 32 percent in 2012 at 34.9 billion euros,
while over-the-counter trade fell 33 percent to 15.6 billion
euros, according to Marcus Ferdinand, senior market analyst at
Prices on the carbon market, which the EU is counting on to
encourage industry to switch to greener energy, have languished
due to a slowdown in European economies and an oversupply of
This year, delays to a European Commission plan to withhold
some carbon permits to reduce the oversupply and therefore boost
prices created volatility as speculators and participants traded
on the back of developments.
Analysts have warned that if the plan is not passed by
member states early next year, carbon prices could fall further.
Carbon prices traded between 6 and 9 euros for most of 2012,
touching a record low below 6 euros this month.
A 70 percent drop this year in the average price of United
Nations carbon credits, which can be used to comply with the
ETS, also impacted the EU market's value.
Analysts said the estimated fall in monetary value could
have been even greater if the market had not been on track for a
10 to 15 percent rise in volumes in 2012, mainly due to
increased activity from an unprecedented number of carbon
auctions in the last quarter.
Disappointed with low, range-bound prices, several firms
have left the EU and U.N. carbon markets. Banks such as KfW
have cut staff, and some, such as Barclays, have sold
off some carbon assets.
Trading houses have reduced their exposure by entering other
Emissions exchange Bluenext, owned by NYSE Euronext
and Caisse des Depots, used to have the biggest
market share of spot trading, but was also a casualty of the
lack of liquidity when it closed this month.
Its German rival EEX has also waived fees and launched a
rebate scheme to attract carbon traders to its platform.
Prices in 2013 are not forecast to rise - they are expected
to average 6.66 euros versus around 7.50 this year according to
a Reuters poll of analysts conducted this month - but some
analysts see higher prices from 2015.
Those who have stuck with the market are mainly players that
have to comply with the scheme, which is legislated to run until
at least 2020. These include utilities and industrials and banks
which buy and sell carbon permits on their behalf.
Utilities are making money from the scheme, albeit less than
in previous years, by trading and arbitraging several spread,
swap and option products, as well as coal and gas generation
"Utilities are the predator of the market. Their skills and
knowledge will allow them to get the maximum out of it, in any
circumstance," said Nomisma Energia's Mazzoni.
"Big banks follow. Less prepared and less focused operators,
like small and medium enterprises and small traders, are the
ones who are having to try more," he added.
There is still a valuable role for intermediaries, such as
banks, said Trevor Sikorski, Barclays' head of carbon research.
"For those who are hedging and helping people hedge, there
is still volume," he said.
($1 = 0.7568 euros)
(Editing by Jason Neely)