Analysts forecast EU carbon price rise, but say supply could swell

By Susanna Twidale

LONDON (Reuters) - Analysts have increased their price forecasts for European Union carbon permits for 2024 to 2026, but said there was a downside risk from possible increases to supply if the European Commission needed to raise cash through permit sales.

EU Allowances (EUAs) are forecast on average at 67.25 euros a metric ton this year and 76.75 euros in 2025, a Reuters survey of nine analysts showed, up 5.1% and 3.7% respectively from forecasts made in April.

The average price forecast for 2026 was 93.46 euros a ton, up 1.1 % from the April forecast of 100.13 euros a ton.

Analysts sharply reduced their forecasts in April after data showed a surge in renewable power use had led to a record fall in emissions covered by Europe's carbon market last year.

The EU's Emissions Trading System (ETS) forces manufacturers, power companies and airlines to pay for each ton of carbon dioxide they emit by surrendering carbon allowances as part of Europe's efforts to meet its climate targets.

To help wean the bloc off Russian fuels following Russia’s invasion of Ukraine and to reach its climate goals, the European Commission launched its REPowerEU plan that includes raising 20 billion euros through the auction of EUAs over the next few years.

The timing and size of these sales will have a significant impact on prices, the analysts said.

“With an average 2024 price of 63 euros/ton, far below the 75 euros/ton initially budgeted by the European Commission, there is revenue gap that will have to be filled by additional auction volumes,” Haege Fjellheim, head of carbon analysis at Veyt said.

The benchmark EU carbon contract trades around 65 euros a ton and has only reached 75 euros or more on a handful of days this year, meaning more permits could be sold to reach the monetary target if prices do not rise.

Fjellheim said she did not think additional volumes would be added to auctions this year but that uncertainty hangs over the market.

(Reporting By Susanna Twidale; editing by Barbara Lewis)