Analysts have trimmed average price forecasts for EU carbon permits for the next three years on expectations of lower demand from the power sector as renewable generation increases and the outlook for European industry is dull.
According to a Reuters survey of six analysts, EU Allowances (EUAs) are expected to average 85.58 euros ($96.00) a metric ton in 2023 and 92.68 euros in 2024. That is down 0.7% and 3.6% respectively from forecasts in April. The forecast for average prices in 2025 fell to 100.28 euros.
The European Union's Emissions Trading System (ETS) pressures manufacturers, power companies and airlines to pay for each metric ton of CO2 they emit as part of Europe's efforts to meet its climate targets.
Analysts said prices this year were likely to be contained by reduced fossil fuel power generation and industrial demand.
“The outlook for the second half of 2023 remains shaky due to slow economic recovery across Europe and persistent demand destruction seen in energy consumption,” said Paula VanLaningham, Director at Refinitiv’s Carbon Research.
Most analysts expect the amount of emissions covered by the ETS will drop this year compared with 2022, as renewable power soars, curbing demand for emission permits.
“With muted industrial demand, and an increased shift towards renewables, we expect EU ETS emissions in 2023 to be around 72.42 million tonnes lower than in 2022 in our 'Most Likely' scenario,” said Thomas Rigny, market data analyst of ClearBlue Markets.
As part of "REpowerEU" plan launched last year, the EU plans to sell an increased number of allowances over the coming years to help raise 20 billion euros towards funding its transition from reliance on Russian fossil fuels, which will also influence prices, the analysts noted.
