EU Carbon Credits 'Undervalued'

EU Carbon Credits 'Undervalued'

The price of carbon credits trading in the European Union Emissions Trading Scheme (EU ETS) dropped by as much as 25 percent during the last month, but an EU research company predicts the credits are undervalued and will likely rally in the mid-term.

IDEAcarbon estimates that market factors will push the the price of European Union Allowances (EUAs) to an average of €29 (nearly $43) per ton during the second phase of the EU ETS running between 2008 and 2012. By 2020, the company predicts carbon will reach a midpoint of €45 ($66) per ton.

The carbon credit ranking firm predicts certified emission reductions (CERs) from the Clean Development Mechanism (CDM) will hit an average of €24 ($35.45) per ton for the same period.

IDEAcarbon’s Global Carbon Report said little had changed in terms of the supply of carbon credits. The CDM is expected to produce 1.6 billion credits through 2012, on top of the 90 million tons produced by the Joint Implementation projects.

But proposed changes will impact the demand side because CERs might need to be used in the 2008-2012 period, rather than banked and sold later. People will want the CERs because they can be swapped for EUAs, which can be held until phase III when fewer credits will presumably be available.

"Everybody's assuming, although the rules haven't been fully defined, it's going to be a lot tighter," IDEAcarbon's David Hopkins told ClimateBiz.com. "There will be a lot more scarcity in the market."

Topics: