US 2012 carbon price to hit $13.70

The first year of trading under president Obama's proposed emissions cap-and-trade scheme should see carbon allowances traded at an average price of $13.70 (£9.66), according to research from analyst Point Carbon.

Based on projections in the president's first budget which estimated that a US-wide cap-and-trade scheme would raise $646bn between 2012 and 2019, Point Carbon calculated that the administration is expecting US carbon allowances to be priced at $13.70 in 2012.

The calculation assumes that about 80 per cent of the economy would have to meet a cap on greenhouse gas emissions at 2005 levels of about 5.8bn tons of carbon dioxide equivalent (CO2e).

It also predicts that with the government set to lower the cap by two per cent each year, the price of carbon would reach up to $16.50 by the end of the first phase of the scheme in 2020.

The estimates assume president Obama overcomes Republican opposition and launches the scheme by 2012 and that it is confined to the US and is not expanded to include Canada and North America.

Veronique Bugnion, managing director of trading analytics and research at Point Carbon, said that a price of more than $13 a tonne would have a significant impact on the wider economy, providing firms and consumers with a clear incentive to adopt more energy-efficient products and business models.

"A carbon price of $13 per ton would produce an increase in the cost of gasoline of $0.12 per gallon, a six per cent increase over current retail gasoline prices," she predicted. "The carbon price impact would grow to $0.15 per gallon by 2020."

She added that on average, electricity bills would rise 6.8 per cent, while coal-intensive regions would see higher increases.

However, while welcoming the proposed scheme, the projected price of carbon is likely to leave environmentalists disappointed.

A price of $13.70 (€10.87) in 2012 will be well short of the price of carbon in the EU's emissions trading scheme, which is expected to reach between €30 (£27) and €40 by 2012.

It is also a long way off the €30 to €50 mark that senior executives responding to a recent Economist survey identified as the "sweet spot" that would spark a genuine shift towards lower-carbon business models.