Analysts raise short-term EU carbon price forecasts: survey

LONDON (Reuters) - Analysts have increased their European carbon market short-term price forecasts on expectations that financial speculators will continue to buy permits and companies that need them for compliance will hang on to them, rather than cash in on prices that hit 14-year highs this month.

EU Allowances (EUAs) are expected to average 24.70 euros a tonne in the third quarter of 2020 and 23.66 euros over the year, according to a Reuters survey of eight analysts. That is up 19.9% and 7.9% respectively from forecasts in April.

The European Union’s Emissions Trading System caps the emissions of about 12,000 power plants, factories and airlines, requiring them to surrender one carbon allowance for every tonne of CO2 emitted annually by the end of April of the following year.

The analysts raised forecasts after the price of EUAs soared over the past few months, reaching a 14-year high above 30 euros a tonne this month.

“Supportive factors are post-COVID economy recovery, renewed interests from financial investors, optimism on the EU’s long-term climate target and industrials unwilling to sell allowances,” said Yan Qin, lead carbon analyst at Refinitiv.

Vertis analyst Bernadett Papp said that financial speculators, betting on higher prices in the future, had played a large role in pushing the market to recent highs.

“With the huge pile of cash financial entities are sitting on, they could support the carbon price further in the future,” she said.

The analysts however, warned that prices could face short-term risks if second waves of coronavirus outbreaks lead to reduced industrial output.

Average prices were forecast at 32.04 euros a tonne for 2021, down 2.9% on the previous forecast but still above current trading levels around 27 euros.

For 2022 the average price forecast rose by 11% to 31.70 euros a tonne.

Reporting by Susanna Twidale; Editing by David Goodman