European carbon prices: ‘underlying trend is up’

High carbon prices work two ways for the steel industry. On the one hand, they encourage more efficient and new ways of production for the integrated producers. On the other hand, if mills need more EUAs, they become more expensive to buy. Hence the benefits of CERs, particularly from within one’s own group.

SBB 3 September 2010: European Union Allowances (EUAs) closed at €15.2/tonne on 31 August on the London-based European Climate Exchange (ECX). This was almost level from last week’s €15.3/t but up over €1/t from the end of July.

Recent price rises came largely from speculators as utility companies are still out of the market, Matteo Mazzoni of Italian economic institute Nomisma Energia tells Steel Business Briefing. Nothing is expected to affect the market significantly before the end of September, he adds.

However, Emmanuel Fages of carbon market analysts Orbeo tells SBB the underlying trend is up. Though prices have levelled off in the last week, prices are still higher than a month ago and could continue to rise. EUAs could touch €17/t before the end of Q3, he suggests.

EUAs can be used to account for greenhouse gas emissions equivalent to one tonne of carbon dioxide under the European Emissions Trading System (ETS). By the end of phase II (2008-2012) of the ETS, a number of new facilities will have joined the scheme. European states have set aside EUAs in a New Entrants Reserve (NER) to cover the emissions of these plants.

A new report by Orbeo suggests that European states will have a net surplus of 88m EUAs which will end up on the European markets. However, this is less than many analysts expected, Fages tells SBB. If the number of new entrants increases significantly as a result of the recovering economy, a net deficit of 61m EUAs could be seen.


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