Forecast for EU carbon prices in next decade put Paris target in doubt

by Reuters
Wednesday, 24 May 2017 09:00 GMT

* Expectations for 2021-2030 at 16.28 euros/tonne

* Carbon market covers 45 pct of EU GHG emissions

By Susanna Twidale

LONDON, May 24 (Reuters) - Participants in Europe's carbon market, including utilities, trading houses and banks expect EU carbon prices to be lower than predicted in the next decade, making it less attractive to invest in the technology needed to help hit emissions targets.

Average carbon prices are likely to be almost 9 percent lower than forecast last year, a survey of 135 companies published by the International Emissions Trading Association (IETA) on Wednesday showed.

"Once again IETA members have highlighted the yawning gap between current prices and what's needed to achieve the Paris objectives," Jonathan Grant, a director at PwC which carried out the survey, said in a statement.

Europe has a target to reduce its greenhouse gas emissions by 40 percent by 2030 compared with 1990 levels as a part of its commitment to the 2015 global Paris Agreement.

Higher carbon prices make it more expensive for firms covered by the EU Emissions Trading System (ETS) to emit greenhouse gases, meaning they are more likely to invest in low carbon technology, such as wind and solar power or energy efficiency measures, when prices are high.

Around 45 percent of Europe's greenhouse gas emissions are regulated by the ETS, the bloc's policy to cut emissions by charging utilities, industry and airlines for the right to emit carbon dioxide (CO2).

Respondents anticipate an average EU carbon price of 16.28 euros ($18.31) per tonne in the fourth phase of the ETS, which runs from 2021 to 2030, some 1.55 euros below expectations made for the phase last year.

The expected average price is less than half the 40 euros per tonne that respondents said last year is needed to help incentivise investments to help the bloc meet goals set under the Paris Agreement.

IETA did not ask its members in this year's survey what price would be needed to meet the Paris Agreement.

Carbon prices have suffered from an excess supply of carbon permits since the financial crisis, with benchmark carbon contracts now trading around 4.90 euros/tonne.

In a bid to boost prices, and make it more expensive for polluters, the European Commission has proposed a series of reforms from 2021 which will cut permits available.

Under the Paris deal more than 190 countries pledged to keep planet-warming well below 2 degrees Celsius (3.6 degrees Fahrenheit) to stave off the worst effects of climate change such as rising sea levels and droughts.

But two-thirds of respondents to the IETA survey said the rise of populist political movements are a threat to action.

President Donald Trump is expected to decide later this week whether to pull the United States out of the Paris deal after he returns from the May 26-27 Group of Seven summit.

Trump, who wants to boost the coal industry in the U.S., has said Washington should "cancel" the deal. ($1 = 0.8890 euros) (Editing by Alexander Smith)

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