Daily Management Review

Analysts Slash Carbon Permit Price Forecast For Q4


Uncertain Brexit scenario cast a shadow on analysts forecast, while the needs for UK’s compliance “with 2019 ETS emissions” will remain unclear in case of further four months Brexit extension.

With the no-deal Brexit fear hanging in the air, analysts have slashed down forecast for the carbon permits’ price of European Union in the Q4.
There are expectations that in 2019’s Q4 EU Allowances will appear at an average of “26.13 euros/tonne”, claimed a survey carried out by “eight analysts” which was “polled by Reuters” while the drop of “3.4%” comes by comparing with July figures.
However, the 2020 and 2021 forecasts of “34.50 euros a tonne and 36.79 euros a tonne were 0.4% percent and 6.9% percent higher, respectively, from the July forecasts”. The ETS or the “European Emissions Trading System” collects tax from factories and power plants alike per “tonne of carbon dioxide” emitted by them.
Britain is scheduled to quit the European Union by the month end, although it is yet to be seen if the country will achieve Brexit with a deal or it will have to settle with a no-deal Brexit or will it extend further its exit time. In case of no-deal Brexit, Britain will automatically come out of the European carbon scheme, whereby fuelling an expectation of a selling-off by “British firms holding EU carbon permits they no longer need”.
Ben Evans is an analyst working at ClearBlue Markets, who said:
“Under this scenario, we could see EUAs fall sharply between 3-5 euros”.
On the other hand, if Britain goes for further extension of Brexit, analysts don’t see any price lift, while the Refinitiv’s “senior carbon market analyst”, Yan Quin:
“We don’t expect prices to surge in the case of an extension to Jan. 31, 2020. With such a deadline, the uncertainty if the UK needs to comply with 2019 ETS emissions will remain”.
From November 4, the ETS would replace its taxes by “a carbon tax” Brexit takes place with no-deal. Moreover, Reuters reported that:
“Analysts expect prices to rise next year from levels around 23.50 euros to an average of 34.50 euros a tonne in 2020 due to a market stability reserve (MSR) designed to remove surplus allowances”.
Nevertheless, analysts have also cautioned that the uncertainty concerning the coal plant closure treatment by member states could impact the prices in future. Germany, the biggest CO2 emitter of Europe as well as the biggest the “EU ETS” permits buyer, made an announcement of closing down power plants that run in coal by 2038. Although it has not been clearly mentioned if the “country will also cancel some of its carbon allowances to prevent a surplus accumulating”.