Tags: UBS | power | prices | carbon

Carbon Market Fix That Boosts Power Prices ‘Stupid,’ UBS Says

Wednesday, 03 Apr 2013 09:02 AM

A European Commission proposal to boost carbon prices as a way to spur investment in clean energy technology is misguided because it would push power costs to “unacceptable” levels, according to a UBS AG analyst.

“That viewpoint is rather stupid, because we need to get the carbon price to at least 25 euros ($32) a metric ton for it to stimulate emissions savings,” Per Lekander in Paris wrote in an e-mailed response to questions. “Such a carbon price would increase the German wholesale electricity price by 50 percent and thus it wouldn’t be acceptable.”

The euro area’s slowing economy has cut demand for carbon emission permits, aggravating a surplus that drove prices in the world’s biggest greenhouse-gas market to a record-low 2.81 euros a ton in January. Europe’s parliament votes April 16 on part of a plan by the region’s regulator to temporarily withhold the sale of some allowances over the next three years.

Carbon permit prices have plunged 83 percent since 2008, according to ICE Futures Europe exchange data. Contracts for delivery in December rose 3 percent today to 5.09 euros a ton at 12 p.m. in London.

The commission’s proposal is known as backloading because it would cut the supply of permits covering 900 million tons of emissions through 2015 and reintroduce the allowances near the end of the decade. The surplus has grown to about 1.9 billion tons, according to Bloomberg New Energy Finance.

Backloading would push prices to about 13.50 euros a ton in 2015, New Energy Finance estimates show.

Emission Limits

The EU’s cap-and-trade system, introduced eight years ago to help meet greenhouse gas-reduction targets, imposes emission limits on power plants and factories. The program allocates permits to polluters that must surrender enough allowances to cover their discharges of carbon dioxide or pay fines.

The low cost of carbon allowances means the penalty for burning cheaper fossil fuels such as coal is relatively small.

“I think it will be very hard to get the needed agreements to get the carbon market going,” Lekander said. “It will continue to exist but really be rather irrelevant.”

Incomplete data from the commission published yesterday showed emissions in the EU’s carbon market program probably dropped about 1.4 percent in 2012.

German power for 2014 reached a record-low 40.20 euros a megawatt-hour on March 20 and was at 41.45 euros today, according to data from brokers. It was as high as 61.75 euros in April 2010.

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A European Commission proposal to boost carbon prices as a way to spur investment in clean energy technology is misguided because it would push power costs to unacceptable levels, according to a UBS AG analyst.
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2013-02-03
Wednesday, 03 Apr 2013 09:02 AM
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