Analysts have cut their average price forecasts for EU carbon permits for the next two years in the sign that weak economies will hit Europe and lead to lower industrial output, while the European Commission readies an increase in permit supply.
According to Reuter’s survey of seven analysts, EU Allowances (EUAs) are expected to average 78.70 euros ($76.70) a tonne in 2023 and 92.43 euros in 2024. That is down 19.4% and 9.3% respectively from forecasts made in July.
Russia's invasion of Ukraine has pushed European gas and electricity prices to hit record highs this year, leading to reduced output from some energy intensive industries which are also buyers of carbon permits and raised the risk some may re-locate altogether to cheaper jurisdictions.
"The upside for EUA prices is limited as industrial demand destruction remains a significant bearish factor, accompanied by geopolitical instability and recession fears," said Clear Blue analyst Goda Aglinskaite.
Analysts said a cut to price forecast is also owing to the prospect of increased permit sales.
As part of its "REpowerEU" plan launched in May, the European Commission plans to increase its sales of allowances over the next few years to help raise 20 billion euros for funding its switch away from reliance on Russian fossil fuels.
"The additional EUA sales under REPowerEU currently under discussion are the reasons why we now forecast an average 2023 price of 70 euros/tonne, down 10 euros from our (earlier) forecast without the REPowerEU sales," said Refinitiv analyst Yan Qin.
The analysts forecast an average price of 101.61 euros a tonne for 2025 with Europe's economies expected to recover and a significant price rise needed to spur investment in technology to enable the bloc to meet its target of reducing emissions by 55% by 2030 compared with 1990 levels.
"The price levels at which these can be implemented will to a large extent decide the price of industrial abatement and hence the price of EUAs in the years leading up to 2030," said Qin.