Point Carbon expects the price will then rise again in 2012 to 25 euros before the third phase kicks off, and continue to improve as a result of a tightening emissions cap. By 2020, the analysts forecast that allowances will cost 36 euros, more than double their value this year at 14.78 euros.
Despite the increases, prices are predicted to become more stable in 2013 where the scheme will move from giving carbon allowances to auctioning them. The first two phases have seen low prices for allowances reportedly because of oversupply. It has been criticized for giving free allowances to major industrial polluters.
A report from Lehman Brothers in 2007 argues that auctioning as opposed to grandfathering, or the free allocation of allowances to existing businesses, is the preferred option of most economists. It is believed that auctioning lends to more efficient distribution of carbon allocations and to a stable carbon price.
Industries covered by the European scheme are said to be holding up to 1 billion allowances as a result of reduced emissions during the recession, equivalent to 25 percent of what industries are expected to emit during the same period.
Point Carbon predicts 60 percent of this surplus will be brought over into the next phase of the scheme.
Similarly, it is not yet known when governments will choose to release the reserve allowance they hold or the 300 million credits that are earmarked for sale to help fund carbon capture and storage projects.
Anne Kat Brevik, senior analyst from Point Carbon, said these issues made it difficult to predict prices, noting that the reserves make up “a significant share” of the supply in 2012.
“The exact timing of when this supply will come to market is still uncertain and that makes the 2012 price correspondingly challenging to predict,” Ms. Brevik said in the statement.
