Analysts lowered EU carbon price forecasts due to weak power sector demand


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Analysts have cut price forecasts for European Union carbon permits for 2024 to 2026, predicting that weak demand from power plants and sluggish industrial demand will impact the market.

EU Allowances (EUAs) are forecasted to average at 74.11 euros per metric ton in 2024 and 83.31 euros in 2025, according to a Reuters survey of nine analysts. This marks a decrease of 11.3% and 6.3%, respectively, from forecasts made in October.

The average forecast for 2026 was 100.13 euros per ton, down 2.8% from the October forecast of 102.97 euros per ton.

The EU's Emissions Trading System (ETS) requires manufacturers, power companies and airlines to pay for each ton of CO2 they emit by surrendering carbon allowances as part of Europe's efforts to achieve its climate goals.

Paula VanLaningham, director of carbon research at LSEG, said, “Economic growth is likely to remain sluggish in the near term across Europe, potentially leading to further demand destruction in many industrial sectors under the EU ETS.”

Industrial output in Germany, the largest economy in Europe, declined in November for the sixth consecutive month, as reported by the federal statistics office earlier in January.

Forecasts for the first quarter of 2024 were cut by 12.9% to 72.61 euros per ton from 83.35 euros per ton.

Ben Lee, analyst from Energy Aspect, said, “We don't anticipate much in the way of price upside this year. Fundamentals are set to be unsupportive, and investors are likely to hold net short positions again, keeping downward pressure on prices.”

Currently, the benchmark EU carbon contract trades around 62.50 euros per ton and has fallen by more than 20% since the beginning of the year.

Strong renewable power output across Europe has reduced the demand for permits from thermal power plants, and the shift in the compliance deadline date is also expected to move some demand to later in the year, according to the analysts.

This year, companies will need to surrender allowances by Sept. 30 instead of April 30 as in previous years, giving them more time to compile data and buy allowances.

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