The bank predicts that an oversupply of gas will dissipate over the next 18 months leading to a rise in the gas price and fuel switching to coal among European power generators. Even without a recovery in gas prices, carbon prices could double by 2014, Bloomberg reports UBS analyst Per Lekander as saying.
The relative prices of gas and coal are the biggest drivers of EU carbon prices. A lift of just 16 per cent in the gas price by 2013 could push EUA prices to toward €42.
A switch to dirtier coal would increase emissions per megawatt of power produced, raising demand for EUAs and driving up the price. While environmentally detrimental in the short run, the switch to dirtier coal and resulting higher carbon prices is likely to drive higher levels of investment in low-carbon technology.
EU carbon prices have languished since the recession set in following the global financial crisis, prompting critics of the EU ETS to say the market is not fulfilling its objective to drive a low-carbon transition in the economy.
The benchmark EU carbon price, for EUA Dec 10 futures, settled at €15.03 on the European Climate Exchange on Wednesday.
Sceptre Group Limited is a specialist investment firm focused on the promotion of green oil, bioenergy, associated green technologies and carbon credits.
Visit our website sceptreinternational.com to find out more.