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With prices hitting a five-month high of €6.50, energy intelligence provider ICIS Tschach has predicted a sustained increase in the price of European Trading Scheme (ETS) allowances. On current trajectories, prices are expected to hit double digits and a two-year high by year’s end, said the company. Such an increase would be a worrying trend for those with significant compliance obligations, especially large, carbon-intensive industrials.
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Since the beginning of the EU ETS’s Phase 3 compliance period at the start of 2013, the market has been oversupplied with allowances, leading to a sustained period of trading within a €3-6 corridor. Now however, a number of factors are converging to push prices consistently higher.
“After all the volatility and exceptional trading activity in Q1 2014, we are seeing the effects of back-loading really start to take hold now,” said Philipp Ruf, Lead Analyst, EU Carbon Markets at ICIS. “Next to the reduced auction volume, the appetite of industrials to sell banked length is rather muted while the demand from utilities seems constant. All these factors, together with the potential momentum derived from the policy discussion around the 2013 emission reduction target and the Market Stability Reserve, suggest a sustained bullish corridor for carbon prices.”
ICIS predicts that carbon prices will enter double digits by the start of 2015 for the first time since 2012. However, with further planned political interventions designed to keep prices high, ICIS says prices of above €20 are perfectly feasible in the third trading period.