SocGen cuts carbon price forecasts by over 22 pct

ociete Generale on Tuesday lowered its price forecasts for European Union and U.N.-backed carbon, citing an over-supply of emission units, a worsening EU economic outlook and an expansion of low-carbon energy sources. Front-year EU Allowances (EUAs) would average 8.9 euros ($11.28) a tonne in 2012, down 28 percent from its previous estimate in November, the Paris-based bank said in a research report. It does not expect EUAs, the price for a tonne of carbon dioxide emissions in the 27-nation bloc’s emissions trading scheme, to rise above 15 euros a tonne before 2020.

SocGen cut its average 2012 price outlook for Certified Emission Reductions (CERs), which are carbon credits issued to clean energy projects under the U.N.’s Clean Development Mechanism, by 36 percent to 5 euros. CERs would fall back to 3 euros a tonne after 2015, it said, pointing to flagging demand from the EU, home to the world’s biggest carbon market and main buyer of the U.N. offsets. “The growth outlook for this year and beyond has been revised down by our economists,” Emmanuel Fages, the bank’s head of European energy and carbon research, told Reuters. “The stagnation in the euro zone will drive (CO2) emissions down.” EU emissions will also be curbed by improvements in energy efficiency and a faster-than-expected penetration of renewable sources, such as hydro, wind and solar, into the bloc’s energy mix through 2020, Fages added.

SocGen slashed its average price forecasts for EUAs and CERs for deliveries in 2013 through 2015 by between 22 percent and 28.6 percent across the board. It predicted EUA prices to average 12.6 euros a tonne over the 2013-2020 trading period of the EU emissions trading scheme, while CERs would average 6.7 euros over the same period.

Carbon prices have more than halved since June, as demand has been choked by flagging growth prospects at a time when carbon supply has an estimated surplus of hundreds of millions of permits and U.N.-backed offsets. The price crash has prompted analysts to cut their price forecasts over the past few months. SocGen’s latest price revision follows a similar move made by analysts at Barclays Capital on Jan. 10. The move has also renewed calls for EU officials to withhold supply in the 2013-2020 trading period of the EU Emissions Trading System (ETS), which caps emissions on power stations, industrial plants and airlines using EU airports.

Last December, some European Union lawmakers backed a proposal to let the bloc’s executive Commission prop up record low carbon prices by withholding 1.4 billion permits. But this measure is likely to face strong resistance by other lawmakers later next month. Such a move would result in a net supply deficit after 2017, said the SocGen report. Without an intervention, the bank projected the market’s cumulative over-supply to amount to 879 million carbon permits and credits by 2020. Fages said that while carbon prices could continue to fall from current levels, he expects the market to be supported by compliance buying over the next several months. “We think that at present price levels the oversupply is fully priced in and we expect the likely future relative dynamics of the market to create more upside than downside,” he wrote in the report.