Analysts trim EU carbon price forecasts on weaker power, industry demand

LONDON, July 14 (Reuters) - Analysts have lowered average price forecasts for EU carbon permits for the next three years on expectations of lower demand from the power sector as the amount of renewable generation increases and the outlook for European industry is weak.

EU Allowances (EUAs) are expected to average 85.58 euros ($96.00) a metric tonne in 2023 and 92.68 euros in 2024, a Reuters survey of six analysts showed. That is down 0.7% and 3.6% respectively from forecasts made in April. COMMODITYPOLL54

The forecast for average prices in 2025 fell by 4.3% to 100.28 euros/tonne.

The European Union's Emissions Trading System (ETS) forces manufacturers, power companies and airlines to pay for each metric tonne of carbon dioxide they emit as part of Europe's efforts to meet its climate targets.

Analysts said prices this year were likely to be contained by reduced fossil fuel power generation and industrial demand.

“The outlook for the second-half of 2023 remains shaky due to slow economic recovery across Europe and persistent demand destruction seen in energy consumption,” said Paula VanLaningham Director at Refinitiv’s Carbon Research.

Most analysts expect the amount of emissions covered by the ETS will fall this year compared with 2023, as renewable power increases, curbing demand for emission permits.

“With muted industrial demand, and an increased shift towards renewables, we expect EU ETS emissions in 2023 to be around 72.42 million tonnes lower than in 2022 in our 'Most Likely' scenario,” said Thomas Rigny market data analyst at ClearBlue Markets.

As part of its "REpowerEU" plan launched last year, the European Commission plans to sell an increased number of allowances over the coming years to help raise 20 billion euros towards funding its transition from reliance on Russian fossil fuels, which will also influence prices, the analysts said.

“We expect the update of the auction regulation in Q3 and how much and when the additional volumes will hit the market could be an important price driver,” said Ingvild Sorhus, Manager of EU Carbon Analytics at consultancy Veyt.

The benchmark EU carbon contract currently trades around 87 euros/tonne.

($1 = 0.8915 euros)

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