EU Carbon Prices Fall 7% On EC Report Delays And Lower Emissions

EU carbon prices fell by almost 7% lower today to €7.14 per tonne. Prices fell following an announcement by the European Commission (EC) that a report into fixing a glut in carbon market credits would be delayed until September. EU carbon prices are down from €20 per ton in 2008 as the recession in Europe resulted in a surplus of credits. This was confirmed by a separate report released today showing CO2 EU emissions fell by 3% during 2011.

Sources within the EU suggested that a report into fixing an oversupply of carbon permits. The EC had intended to prop up weak carbon prices by delaying sales of new allowances in the next phase of the scheme, starting in 2013. However, a number of commissioners had raised objections to the suggested fix following legal threats from Europe’s steel industry.

EU carbon traders had bet that the EC would cut EU permit supply by up to 1.2 billion over the next three years. Some analysts had suggested that EU carbon prices may triple if the plan was introduced. EC sources suggest that the intention is still to get the proposal adopted by the end of the year. However the additional legal process has raised doubts in the market over whether it will come into effect before 2013.

EU carbon permits have declined in price from €20 per tonne in 2008 to around €7 per tonne currently. According to the EC's Joint Research Centre (JRC) and the Netherlands Environmental Assessment Agency (PBL) EU CO2 emissions dropped by 3% in 2011 to 7.5 tonnes per capita. According to the report weak economic conditions, a mild winter, and energy savings stimulated by high oil prices led to the decline.

Following today's delay to the EC report, Deutsche Bank lowered its forecast for EU permit prices for the third quarter from €6-10 per tonne to €6-8 per tonne. Continued weak economic growth in Europe means emissions may well continue to fall during 2012 creating an even larger surplus and lower prices. However, with Europe mired in economic stagnation and high oil prices likely to contribute to further energy demand destruction, EU carbon permit prices are likely to weaken further.