UBSAG, the biggest Swiss bank, said European Union carbon permit prices may almost triple by as early as 2013 as natural gas recovers.
“UBS expects the gas oversupply to be gone by 2013,” UBS analyst Per Lekander in Paris said today in an e-mailed report. “Should the gas price then revert to oil indexation parity we could see a carbon price in excess of 40 euros a ton, almost three times the current level.”
The price of emission permits is driven by so called fuel switching, where generators produce electricity from either natural gas and coal, depending on which is most profitable, according to the report. A gas market recovery by 2013 may boost the price of the commodity by 16 percent, leading to a fuel switching cost of 42 euros a ton, Lekander said.
The expected higher emissions price will impact power markets and prices may rise 15 euros ($20) a megawatt-hour if gas markets fully recover, he said. The 2013 contract in Germany, Europe’s biggest market, traded at 54.45 euros yesterday, 5.05 euros more than the next-year contract, according to broker prices on Bloomberg.
Coal and gas forwards indicate that carbon prices could double by 2014, assuming “no recovery at all in gas prices until 2013,” Lekander said. “The reason for this anomaly is lack of liquidity in the CO2 forward curve beyond 2011.”
EU permits for December rose 8 cents, or 0.5 percent, to 14.99 euros a metric ton at 11:35 a.m. on London’s European Climate Exchange. The EU trading program is the world’s largest.
UBS said Fortum Oyj, Finland’s biggest utility, and Electricite de France SA are the “likely main winners” from rising emission and power prices because they generate virtually all their electricity from fossil-free generation. Public Power Corp., Greece’s biggest power company, may be “the largest loser.”
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