Point Carbon’s prediction gives a baseline to energy firms that tend to make long-term investment decisions. But in practice the report may be of little use. The analysis does not assess market conditions per se, but rather the political climate that governs the ETS. Predicting the political air in, say, France five years from now is highly complex, predicting it in the 27-nation EU, downright impossible. Add to the mix that the government controls the supply of ETS and the market may be far more difficult to forecast than oil where analysts can at least track supply to some degree.
The report does have some merit, however. It points out the cost of ETS must rise for the system to be relevant and for the EU to reach its current emission reduction goal of 20% below 1990 levels (and eventually more). It also lays out different scenarios and what may contribute to pricing levels. A functioning system with predictable pricing hinges on limiting supply and auctioning allowances rather them giving them way as the EU has done before (and plans to do again). Those actions are held to politics.
Predicting the values of ETS allowances five years out also relies on the interaction between the EU, the US and beyond. Point Carbon makes a difficult swag, although the rub is simple: the cost of emitting carbon will go up in the EU. But until a long-term multinational framework with large country emitters on board is in sight, investment decisions must be made in a flexible regulatory environment.
Edited from Thecleantechpost.blogspot.com