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Analysts have reduced price forecasts for European Union carbon permits for 2024 to 2026, with weak demand from power plants and sluggish industrial demand set to weigh on the market. EU Allowances (EUAs) are forecast on average at 74.11 euros a metric tonne in 2024 and 83.31 euros in 2025. That is down 11.3% and 6.3% respectively from forecasts made in October.
The average forecast for 2026 was 100.13 euros a tonne, down 2.8% from the October forecast of 102.97 euros/tonne. The EU's Emissions Trading System (ETS) forces manufacturers, power companies and airlines to pay for each tonne of carbon dioxide they emit by surrendering carbon allowances as part of Europe's efforts to meet its climate targets.
“Economic growth is likely to remain sluggish in the near term across Europe, which is likely to lead to further demand destruction from many of the industrial sectors under the EU ETS,” said Paula VanLaningham, director of carbon research at LSEG. Industrial output in Germany, Europe’s largest economy, fell in November for the sixth consecutive month, the federal statistics office said earlier in January.
Forecasts for the first quarter of this year were cut by 12.9% to 72.61 euros/tonne from 83.35 euros/tonne. “We don't see much in the way of price upside this year. Fundamentals are set to be unsupportive and investors are likely to hold net short positions again, keeping downward pressure on prices,” said Energy Aspects analyst Ben Lee.
The benchmark EU carbon contract CFI2Zc1 currently trades around 62.50 euros/tonne and has fallen more than 20% since the start of the year. Strong renewable power output across Europe has cut demand for permits from thermal power plants while the change in the compliance deadline date is also expected to shift some demand to later in the year, the analysts said. Companies will this year have to surrender allowances by Sept. 30 instead of April 30 as in previous years, allowing them more time to compile data and purchase allowances.
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