LONDON (Reuters) – Analysts have raised their forecasts for carbon prices in the EU Emission Trading System (ETS) after data showed emissions under the scheme rose in 2017 and Britain’s government gave clarity on its intention to stay in the ETS until the end of 2020.
Analysts expect EU Allowances (EUAs) to average 11.51 euros/tonne in 2018 and 13.86 euros/tonne in 2019, according to the survey of eight analysts by Reuters published on Wednesday.
The forecasts were up 39 percent and 28 percent, respectively, from prices given in January, when the forecasts were for 8.27 euros for 2018 and 10.82 euros for 2019.
Analysts also increased their forecasts for 2020 by 22 percent to 18.36 euros/tonne.
The European Union’s Emissions Trading System (ETS) charges power plants and factories for every tonne of carbon dioxide (CO2) they emit.
Industry experts have said a carbon price of 25-30 euros per tonne is needed to help accelerate the shift away from carbon intensive coal-fired power generation and towards renewable power such as wind and solar.
Data released by the European Commission last week showed emissions regulated under the scheme rose for the first time in seven years in 2017 due to stronger industrial output.
“With the recovering European economy, we saw industrial emissions increasing, turning these companies short in (carbon)allowances,” said Bernadett Papp, senior market analyst at advisory firm Vertis Environmental Finance.
Britain’s energy minister said last month the country plans to remain in the EU ETS until at least the end of its third trading phase running from 2013-2020.
“The UK staying in the EU ETS until at least the end of phase III also sent a bullish signal,” said Sandrine Ferrand, analyst at Engie Global Markets.
The status of Britain’s participation in the scheme following the country’s exit from the European Union in March 2019 had been unclear.
The British minister said the country has yet to decide whether to remain in the scheme after 2020.
The ETS has suffered from excess supply since the financial crisis, but new measures to start in 2019 will remove some of the surplus.
Traders said this has already led to an increase in buying and a bullish start to 2018, with the benchmark price up more than 60 percent since the start of January to 13.40 euros/tonne.
Reporting by Susanna Twidale; Editing by Adrian Croft