Deutsche Bank predicts carbon price recovery

Deutsche Bank has added its voice to those of analysts saying the EU carbon market will rebound during 2010, predicting that the price of EU emission allowances (EUAs) will recover to €15–€16 a tonne by the middle of the year.

In a research note released over the weekend, the bank predicted that despite downgrading its emissions forecast for the current phase of the EU emissions trading scheme (ETS), it still expected prices to recover in the medium term as energy firms hedge against the expected shortfall in emission allowances that will come into effect from 2013.

"We see moderate downside risk to EUAs until mid-February, but think that thereafter utility buying could see prices revert to €15–€16 per tonne by mid-year," the note said. "This is because generators will have to hedge increasing amounts of 2013 power sales this year, and with the auctioning of 2013 EUAs unlikely before Q3 2011 at the earliest, they will have to buy Phase-2 EUAs instead."

The analysis mirrors a separate research note released last week by Barclay's Capital, which similarly predicted that the average price of EUAs during the second half of the year will reach around €15 a tonne as firms seek to build up a stockpile of allowances that they can carry over for use in phase three of the ETS when it starts in 2013.

The predictions could prompt speculators to purchase EUAs at the current price of around €13 a tonne, with a view to cashing in as prices rise ahead of phase three.