CIG can confirm that market reaction to the recently agreed Copenhagen Accord by the U.S. and China and a handful of emerging nations has not been entirely positive, with the EU saying that with the weaker than expected deal it was not convinced that it was persuaded to raise its carbon emissions cutting target to a 30% cut by 2020 as opposed to its current 20% on 1990 levels.
More uncertainty was created when the future of the Kyoto Protocol which ends in 2012 and its Clean Development Mechanism had no new direction after the summit.
CIG has it that market analysts signaled their feelings on how this will affect prices for EU Allowances, the permits traded under the EU's $92 billion Emissions Trading Scheme (EU ETS), for Certified Emissions Reductions (CERs), the offsets traded under the CDM, and the effect on overall global trading markets.
A source at Deutsche Bank has said that, "There is now no near-term prospect of the EU raising its 2020 target. As a result, sentiment will be negatively affected and we expect EUA prices to decline over the next few sessions. With the selling of surplus EUAs by industrials in early 2010 already a real possibility before the outcome of Copenhagen was known, we would not now be surprised to see sustained EUA price weakness through to the middle or end of February 2010."
CIG also believes that a Citigroup analyst was recently quoted as saying that "The unsatisfactory outcome of the negotiations now makes it unlikely that the EU's 20% target will be changed, in our view, with the most likely reconsideration of the target not until 2015, in line with the new accord's timeline."
"This is negative for EUA prices in the short term, through 2010 and potentially through to 2020. We assume an average Phase 2 (2008-2012) EUA price of 20 euros per tonne, rising to 25 euros in 2013 and 30 euros in 2020, based on an expectation of some tightening of the scheme from 2013. Our floor price for periods of low permit demand is 10 euros."
CIG research indicates that after U.S. President Barrack Obama’s acceptance of the new treaty, there is a very real possibility of the global hub for carbon trading shifting to either Chicago or more likely New York’s Nymex, with the U.S.’s considerably less controlling system.
