Analysts sharply raise EU carbon price forecasts on tougher climate goals

LONDON (Reuters) - Analysts have significantly increased their European carbon market price forecasts on expectations tougher climate targets for greenhouse gas reductions in the bloc will drive up the cost of permits.

EU Allowances (EUAs) are expected to average 37.86 euros a tonne in 2021 and 41.61 euros/tonne in 2022, according to a Reuters survey of eight analysts. That is up 18.2% and 31.3% respectively from forecasts in July.

The average forecast for prices in 2023 was 46.15 euros/tonne.

The European Union’s Emissions Trading System (ETS) is the bloc’s flagship scheme to cut emissions and caps the emissions of about 12,000 power plants, factories and airlines.

The EU wants to bolster its 2030 climate target to steer its economy towards becoming “climate neutral” by 2050 which means a greater burden will be placed on companies covered by the ETS and more sectors, such as shipping are likely to be included.

“We.. expect the more ambitious policy to significantly boost carbon prices in phase 4 (2021-2030),” analysts at Refinitiv said in a note.

“Assuming a 55% climate target is adopted, the ETS cap would be strengthened to meet the new 2030 ambition,” they said.

In the short-term analysts warned prices are likely to be volatile as discussions over the new EU climate target and Brexit gather pace and as restrictions designed to limit the spread of the novel coronavirus could dampen electricity demand and industrial output.

“While this might have some transitory dampening effects on the market for EUAs, we believe these to be short-lived and most likely to manifest on a day-to-day basis,” analysts at ClearBlue said in a note.

The analysts forecast average prices of 29.86 euros/tonne for the fourth quarter of this year, up 15.7% on the previous forecast and 33.27 euros/tonne for the first quarter of 2021.

Reporting By Susanna Twidale; editing by Emelia Sithole-Matarise