Analysts raise EU carbon price forecasts after bull run

FILE PHOTO: a chimney at Laziska power station, a thermal power plant, is seen behind the Boleslaw Smialy coal mine in Laziska Gorne, Poland, December 5, 2018. REUTERS/Kacper Pempel/File Photo

LONDON (Reuters) - Analysts have raised their European carbon market average price forecasts for 2021 and 2022 after record highs this month on growing confidence in the EU’s Emissions Trading System (ETS) and soaring gas prices that drove up the cost of carbon permits.

EU Allowances (EUAs) are expected to average 39.24 euros a tonne in 2021 and 46.24 euros in 2022, according to a Reuters survey of eight analysts. That is up 3.6% and 11.1% respectively from forecasts in October.

“We had to revise our price expectations significantly due to the higher base the EUA reached end of 2020, beginning of 2021,” said Vertis analyst Bernadett Papp.

The price of EU carbon permits has risen almost 40% since the beginning of November on momentum that built ahead of European Union leaders’ December agreement on a more ambitious emissions reduction target for 2030.

The ETS scheme caps the emissions of about 12,000 power plants, factories and airlines.

“There has been renewed confidence in the ETS as a climate policy tool, and optimism that the more ambitious 2030 target will continue to be a supportive factor,” said Refinitiv analyst Ingvild Sorhus.

The average forecast for prices in 2023 was 46.08 euros a tonne, little changed from 46.15 euros in October.

The 2023 forecast, however, marks an increase of about 43% from current trading prices around 32.20 euros.

The analysts said that market reforms to help the EU meet its tougher target will continue to push prices higher.

Reporting by Susanna Twidale; Editing by David Goodman