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Analysts raise EU carbon price forecasts on market reform plans

·2 min read
FILE PHOTO: Smoke billows from the chimneys of Belchatow power station in Poland

By Susanna Twidale

LONDON (Reuters) - Analysts have raised their European carbon market average price forecasts after the European Commission unveiled a package of policies to implement its climate targets, including reforms to limit the number of carbon permits available.

EU Allowances (EUAs) are expected to average 52.01 euros a tonne in 2021 and 62.26 euros in 2022, a Reuters survey of eight analysts showed. That is up 12.4% and 11.8% respectively from forecasts made in April.[COMMODITYPOLL54]

The average forecast for prices in 2023 was 61.49 euros a tonne, representing a 9.4% increase.

The European Union's Emissions Trading System (ETS), which forces manufacturers, power companies and airlines to pay for each tonne of carbon dioxide they emit, is central to EU efforts to cut net greenhouse gas emissions by 55% from 1990 levels by 2030.

To help meet the target the European Commission earlier this month proposed to widen the ETS to include shipping, curb the number of permits given to industry for free and reduce the number of permits in circulation each year at a faster rate than currently.

The proposal would also strengthen the ETS "market stability reserve," which removes excess permits from the market to try to prevent them depressing prices.

"Turning towards 2022-2023, our anticipation is that the market will move in anticipation of the EU's new policies coming into place," said Mourad Farahat, market analyst at ClearBlue.

Benchmark EU carbon prices have risen more than 60% since the beginning of the year to around 53.50 euros a tonne on expectation of the market reforms.

Several analysts cautioned the proposals will only become law after up to two years of negotiations involving the European Parliament and EU member states.

“The final design will be decided in policy negotiations that will start in earnest after the summer break and continue well into 2022, most likely into 2023,” analysts at Refinitiv said.

(Reporting By Susanna Twidale; editing by Barbara Lewis)

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