European carbon prices test upper limit

Interesting comments in this report – from analysts – on the likely impact of the shortfall in free allowances for the steel industry. It would appear that they believe that the shortfall is not significant….in terms of the price of allowances. It may however be significant for the individual steel producers in terms of their costs, though they have, unexpectedly of course, accumulated unused allowances as a result of the 2009 recession.

SBB 15 October 2010 Spot European Union Allowance (EUA) prices reached €15.78/t ($22.23/t) at the start of the week, before consolidating to €15.59/t on 13 October, only slightly higher than a week earlier. The upward pressure came from slightly firmer European gas and power prices, analysts tell Steel Business Briefing.

EUAs can be used by European industrial facilities to account for greenhouse gas emissions equivalent to one tonne of carbon dioxide under the European Emissions Trading System (ETS). In the current phase II (2008-2012) of the ETS steelmakers receive most or all of their allowances for free. However, from 2013 onwards they will have to pay for an increasing proportion of their emissions.

Although prices are expected to rise before 2013, EUAs are likely to remain range-bound at €14.5-16.5/t for the remainder of the year, Trevor Sikorsky, carbon analyst at Barclays Capital, tells SBB. The impact of the industrial benchmark proposals leaked last week will be negligible, he says.

These proposals will determine the number of free allowances given to industry from 2013. Eurofer complained that the benchmarks were unfairly low. However, industry already expected a shortfall of free allowance from 2013 onwards and so this has already been factored into EUA prices, Sikorsky says.

Emmanuel Fages of carbon analysts, Orbeo, agrees. Although gas prices have pushed EUAs closer to €16/t than €15/t, they have been unable to break through the €16/t barrier and are likely to remain range-bound in the near term.


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