KfW/ZEW CO2 Barometer 2010: Companies are not prepared for post 2012 Emissions Trading

The KfW/ZEW CO2 Barometer 2010 was released on June 30 and shows that two thirds of German companies covered by the EU Emission Trading Scheme (EU ETS) have not yet evaluated potential additional costs caused by the change of permit allocation after 2012. 28 percent of the respondents are planning to evaluate additional costs within the next years. Especially for industrial installations, a lot of uncertainty remains as the efficiency benchmarks, which will be crucial for the share of free allocation per installation, have still not been settled by the EU Commission.

The KfW/ZEW CO₂ Barometer 2010 is a joint project of KfW Bankengruppe and the Centre for European Economic Research (ZEW) in Mannheim. The report is available at www.zew.de.

The responding enterprises and experts are predicting an average price for EU emission allowances (EUAs) between EUR 13.50 and 14.40 until December 2010. The price range is expected to rise slightly to EUR 14.70 to 16.40 until July 2011. Until the end of 2012, the EUA price is estimated between EUR 16.30 and 19.80. In the third trading period, average EUA prices could reach EUR 28.10.

The spread between EUA and CER prices is expected to stay below EUR 3 until the end of 2010. By July 2011, the spread could reach EUR 3.48. A rising spread of up to EUR 4.30 is anticipated until the end of 2012. Compared to 2009, EUA price expectations as well as expectations for the EUA-CER spread have slightly decreased. Most probable factors for these lowered predictions are the EUA surplus due to the economic crisis, the reduced chances of an international climate treaty as well as the diminished projections for CER issuance.

In 2009, emissions of German installations in the EU ETS decreased by about 9 percent as a consequence of the economic crisis of 2008 and 2009. 23 percent of installations where short of allowances in 2009, compared to 28 percent in 2008. Consequently, only half of the companies became active in allowance trading in 2009. 18 percent traded more than once in 2009. Small emitters (less than 25,000 tons of CO₂ emissions in 2009) were less active on the market. 60 percent of small emitters did not trade in 2009 at all, whereas 40 percent of companies with more than 25,000 tonnes CO₂ emissions traded actively, i.e. more than once a year.

The majority of the respondents (60 percent) traded with the help of intermediaries, like carbon funds or banks. One third traded over-the-counter and only 15 percent, mostly large emitters, traded directly on exchanges. Companies that did not trade in 2009 indicated that sufficient free allocation was the reason for absence from the markets (58 percent). Other reasons were avoidance of speculative trade (42 percent) and uncertainty about the further development of the market (24 percent). Currently, 36 percent of companies are planning to trade emission certificates in 2010.

With respect to the use of CERs and ERUs, i.e. UN-backed emission reduction certificates from projects mainly in developing countries, there is still a significant lack of information among German companies. Companies engaged in trading CERs or ERUs belong mostly to the group of large emitters. 32 percent of respondents traded CERs via banks or carbon funds in 2009, 16 percent traded OTC and 7 percent traded on exchanges. Only 4 percent of firms handled ERUs, mostly via intermediaries. Avoidance of speculative trade (34 percent) is an important reason for companies not to trade with CERs or ERUs. Among large emitters, especially the uncertainty about the future of the CDM is an important argument to stay away from the market.

If an international post-Kyoto agreement is not reached by 2012, CERs issued from projects registered after 2012 will be only accepted in the EU ETS if they are generated in projects located in Least Developed Countries or countries with a bilateral agreement with the EU. The surveyed carbon market experts therefore expect Africa, countries in Asia (without China and India) and Latin America (without Brazil) to host an increasing number of CDM projects. The number of CDM projects in China, on the other hand, is expected to stagnate or even decrease.

 

 

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