EU Carbon Will Fall; ‘Only Real Price Floor Is Zero,’ UBS Says

By Mathew Carr

Jan. 30 (Bloomberg) -- European Union emission permits may fall to record lows, with little to stop them temporarily dropping near zero during potential oversupplies as factories and power stations sell for cash, according to a UBS AG analyst.

“The only real price floor is zero,” Per Lekander, Paris- based UBS managing director and utilities analyst, said by phone today. That, along with potential regulatory changes by governments that created the market, means there are better opportunities for traders in the power, natural-gas and oil markets, he said this week in a conference presentation in London e-mailed to Bloomberg.

Benchmark EU emission prices have plunged more than 60 percent from a peak in July, as factory output dropped because of the recession, slashing demand. Prices may temporarily drop a further 58 percent as Poland issues allowances next week, boosting supplies, or as nations issue 2009 permits next month, Lekander said.

Prices may fall to 9.50 euros ($12.23) a metric ton from 11.93 euros today, Lekander said. They should be bolstered because post-2012 prices will be higher as the European Commission crimps the supply of allowances, he said. That forecast implies a minimum price of 20 euros in 2013 and a 20 percent cost of carry because of the risks in the multiyear trade, he added.

EU carbon dioxide allowances for December rose 5 cents, or 0.4 percent, to 11.93 euros a metric ton on the European Climate Exchange in London at 8:15 a.m. local time. They closed at 11.50 euros on Jan. 21, a record low for any phase-two contract. The phase runs for the five years starting last year.

Prices could drop as low as 5 euros in the next few months, before utilities including RWE AG of Germany step up purchasing, according to the UBS analyst.

Factories and power stations can use their allowances from 2008 in the third phase, the eight years through 2020. “Had there been no phase three, I would have forecast it would fall to zero,” Lekander said.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net