EUAs could rise by €10 if the bloc slashes the post-2012 cap by some 5 per cent, Barclays Capital said.
A draft EU document last week showed the European commission may propose that 500-800 million of surplus emission allowances (EUAs) could be taken out of the market from 2013.
“Such a movement could easily add 10 €/t to our forecast prices for 2013, with prices likely to react as soon as such a move is seen as likely,” Trevor Sikorski, an analyst at the UK-based bank, wrote in a research note published on Monday.
This means the EUA price in 2013 could average €40, compared with the bank’s most recent forecast of €30.
By 1700 GMT, the EUA for December delivery last traded at €15.25.
“While this is either great news or a complete disaster, depending on your position in the market, the whole proposal does have some deeply disturbing elements,” the research note said.
He questioned the EU executive’s motive behind wanting to tweak rules in order to prop up prices, which appeared to be an alternative attempt to deepen the bloc’s 2020 emissions-reduction target without revising the directive.
“Such behaviour is the opposite of what is required to instill the market with certainty, and such proposals do leave participants wondering just how to value carbon,” Sikorski wrote.
The draft EU document, seen by Point Carbon News, said the market was expected to be oversupplied by 500-800 million units in the market’s second phase, from 2008 through 2012.
“Setting aside the equivalent number of allowances during the period 2013-2020 in phase three would restore the originally foreseen overall allowances budget for the next decade,” it said.
With the total cap for phase three around 15.25 billion tonnes of CO2 and as many as 800 million surplus allowances in phase two, withholding the surplus could cut the supply of EUAs by up to 5 per cent in the 2013-2020 trading phase.
But without an elaboration or details of how the set-aside would work “only adds to market confusion”, Sikorski added.
By Jeff Coelho – firstname.lastname@example.org
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