Carbon Prices must rise over 2008-20 to meet EU Policy Targets
In a report published on the 30 May, Deutsche Bank has revised its EUA price forecast to €40/t, which, based on Deutsche Bank’s long term gas and coal price estimates, is the EUA price required to ensure the successful acceleration of the carbon-capture-and-storage (CCS) programme. This is required to fulfil the ETS policy objective of making CCS the new-entrant technology of choice for power generators by 2020 with a view to restricting average global temperatures to no more than to 20 C higher than pre-industrial levels.
The research is authored by Mark C Lewis, Managing Director of Global Carbon Research at Deutsche Bank, who states that the new price forecast reflects a need for 60GW of Combined Cycle Gas Turbine CCGT capacity by 2020. Deutsche Bank believes that insufficient fuel switching capacity across the EU currently means the required level of internal abatement within the ETS cannot be achieved at a price of below €40/t over phase 2 and that therefore installations will need to a use a disproportionately large share of their total allowed carbon credits over 2008 –1012, thus giving themselves time to build the new capacity reserves to enable greater fuel switching over 2013-20.
Lewis, however, also warns of potential price spikes during phase 2: “Because borrowing from future periods is not allowed, there is a non trivial risk of a significant spike in EUA price towards the end of phase 2. Prices of €100/t or more are possible,” he says.
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