Investors losing confidence in EU ETS but cause for long-term optimism

According to market intelligence firm Thomson Reuters Point Carbon’s annual report, this response was due to the weak price signal currently generated by the EU ETS, which saw prices fall to historic lows in 2012. 

However, the report’s author Dimantchev argued that the long-term outlook for the EU ETS was positive with the majority of survey participants (65%) believing it is likely that EU politicians will adopt the backloading proposal to delay the supply of European allowances.

In addition, around half of the respondents considered the long-term carbon price a decisive factor in investment decisions.

Dimantchev said: “These results imply that the majority of market participants assume market reform in their trading and investment strategies.

“If these plans fail, the market will pass a tipping point beyond which both the price and companies’ behaviour will be drastically different.”

A majority of respondents also believed that the EU would adopt one of the six options to structurally reform the market put forward by the European Commission.

These include increasing the EU’s emission reduction target to 30%, removing allowances, increasing the cap’s linear reduction factor, extending the scope of the scheme, and implementing a discretionary price management mechanism.

As many as 77% of respondents believed the EU would take on a more ambitious reduction target for 2020.

The survey suggested that outside the EU, developing carbon markets were more optimistic in their outlook. In California, 60% of respondents who have a compliance obligation under the Western Climate Initiative (WCI) market said they are setting up trading operations, and 53% said they are planning internal abatement.

In Australia, 65% of respondents believed that the country’s cap-and-trade programme will start as planned in July 2015, despite intensifying opposition from the Liberal Party.

Conor McGlone