September 23, 2010 / 1:13 PM / 9 years ago

EU carbon flat; UBS says price may triple by 2013

LONDON (Reuters) - European carbon emissions futures were flat on Thursday, after firming in the first five minutes of trade, on slow trading activity, traders said.

EU Allowances for December delivery edged up by 1 cent or 0.07 percent to 15.04 euros ($20.16) a tonne at 0646 GMT, on light volume of 221 lots traded.

Certified emissions reductions were slow to trade.

“The Dec-10 (EUAs) opened stronger at 15.08 euros but have since traded one cent either side of yesterday’s close. It’s too early to say which direction they might go in yet as there isn’t a lot of volume,” an emissions trader said.

Traders see 14.82-14.92 euros as a support level for EUAs.

German Calendar 2011 baseload power on the EEX was up 5 cents or 0.10 percent at 49.40 euros per megawatt hour.

UK natural gas for October delivery was down 0.12 percent at 43.25 pence per therm.

Oil was steady below $75 a barrel on Thursday after government data showed an unexpected increase in U.S. crude and gasoline stockpiles, ahead of key jobs and housing reports later in the day.

CARBON GAINS

EUA prices may triple by 2013 if natural gas prices recover, UBS analyst Per Lekanders said in a note this week.

“UBS expects the gas over-supply to be gone by 2013. Should the gas price then revert to oil indexation parity we could see a carbon price in excess of 40 euros a tonne, almost 3 times the current level,” he said.

Carbon prices are influenced by fuel switching — when utilities generate electricity from either coal or natural gas according to which is the most profitable.

If gas fully recovers by 2013, which UBS sees likely, the gas price would be 16 percent higher, leading to a fuel switching cost of 42 euros a tonne or 147 percent above the forward curve, Lekander said.

Coal and gas forward curves show that EUA prices could double by 2014 if there is no recovery in gas prices until 2013 due to limited liquidity after 2011 in the CO2 forward curve, the report said.

“We expect the carbon price to start to increase from 2012 and to double by 2014. Full gas market recovery implies even further upside,” Lekander added.

Reporting by Nina Chestney; Editing by Alison Birrane

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