Details

The cost of carbon in California has risen sharply while the equivalent in the European Emissions Trading System has so far gained little from yesterday’s long-awaited reform proposals

London, 26 July 2012 – A reduction in regulatory uncertainty in California, and concern about a nuclear power outage, have helped to push the price of a carbon allowance in the US’ most populous state to more than double that in the much longer-established European Union Emissions Trading System.

The value of a California Carbon Allowance (CCA) for delivery in December 2012 closed at $19.50 per metric ton of CO2 equivalent (EUR16.04/tCO2) on 24 July, the highest closing price of the year so far. The price for European Union Allowances (EUAs) for delivery in December 2012 closed at EUR7.20/tCO2 on the same day.

The much higher price in California may be surprising to Europeans, given perceptions about American reluctance to take action on climate change. Ironically, the California scheme was almost derailed earlier this year by legal action taken by an environmental action group (the Association of Irritated Residents) who insisted that the scheme was not strict enough.

The price of EUAs has remained low despite the European Commission’s release yesterday of its proposal for changes to auctioning volumes in Phase III of the EU ETS, which begins in 2013. These changes, if approved by both Parliament and the Council, would delay some of the auctioning volume originally intended for the early years of Phase III, into the later years. The changes were proposed by the European Commission in response to widespread criticism that the price in the EU ETS is too low to promote the necessary investments in clean energy.

In the long term, Bloomberg New Energy Finance expects prices in both the Californian and EU ETS to rise significantly, since the emission reduction targets in both parts of the world for the period beyond 2020 are likely to continue to strengthen. At the moment the firm’s base case forecast for the spot price of an allowance in 2020 in both markets is the same, at EUR45/tCO2 ($55/tCO2). The fact that the forecasts are the same is purely coincidental and belies significant structural differences in the two markets; the EU ETS has access to the Kyoto market for international credits whereas California does not; and the largest sector in the EU ETS is the power sector while transportation is the largest emitter in the California market.

Matthew Cowie, head of carbon market research at Bloomberg New Energy Finance, commented, "While it appears that Europe has the political will to give the EU ETS more teeth in the long term, the process of fixing the problems continues to suffer delays. A month ago most market participants thought that changes to the Auctioning Regulation could be in place by the end of 2012, but most commentators now expect that this will take well into 2013 to accomplish. This market needs both ambition and structural stability in order to regain its lost importance.”

Michel Di Capua, head of North American research at Bloomberg New Energy Finance, commented, "After several failed attempts to introduce cap-and-trade at the national level, there's a widespread belief that carbon markets are dead in North America. Not so. We are on the verge of seeing the emergence of a meaningful tradable market that over the long run will transform California's power, industrial, and transport sectors. The business community should take note; this market will impact some of the country's largest utilities and some of the world's biggest oil and gas players, among others."

Futures contracts for the California market have been trading since 2011. Its underlying spot market is due to begin in 2013. The EU ETS saw the first futures trading in 2003, and the start of spot trading in 2005.

For further information:
Matthew Cowie
Bloomberg New Energy Finance
+44 20 3216 4780
mcowie2@bloomberg.net

ABOUT BLOOMBERG NEW ENERGY FINANCE

Bloomberg New Energy Finance is the world’s leading independent provider of news, data, research and analysis to decision makers in renewable energy, energy smart technologies, carbon markets, carbon capture and storage, and nuclear power. Bloomberg New Energy Finance has a staff of 200, based in London, Washington D.C., New York, Tokyo, Beijing, New Delhi, Singapore, Hong Kong, Sydney, Cape Town, São Paulo and Zurich.

Bloomberg New Energy Finance serves leading investors, corporates and governments around the world. Its Insight Services provide deep market analysis on wind, solar, bioenergy, geothermal, carbon capture and storage, smart grid, energy efficiency, and nuclear power. The group also offers Insight Services for each of the major emerging carbon markets: European, Global Kyoto, Australia, and the U.S., where it covers the planned regional markets as well as potential federal initiatives and the voluntary carbon market. Bloomberg New Energy Finance’s Industry Intelligence Service provides access to the world’s most reliable and comprehensive database of investors and investments in clean energy and carbon. The News and Briefing Service is the leading global news service focusing on clean energy investment. The group also undertakes applied research on behalf of clients and runs senior level networking events.

New Energy Finance Limited was acquired by Bloomberg L.P. in December 2009, and its services and products are now owned and distributed by Bloomberg Finance L.P., except that Bloomberg L.P. and its subsidiaries distribute these products in Argentina, Bermuda, China, India, Japan, and Korea. For more information on Bloomberg New Energy Finance: http://www.bnef.com.

ABOUT BLOOMBERG

Bloomberg is the world’s most trusted source of information for businesses and professionals. Bloomberg combines innovative technology with unmatched analytic, data, news, display and distribution capabilities, to deliver critical information via the BLOOMBERG PROFESSIONAL® service and Multimedia platforms. Bloomberg's media services cover the world with more than 2,300 news and Multimedia professionals at 146 bureaus in 72 countries. The BLOOMBERG TELEVISION® 24-hour network reaches more than 240 million homes. BLOOMBERG RADIO® services broadcast via Sirius XM Radio and 1worldspace™ satellite radio globally and on WBBR 1130AM in New York. BLOOMBERG MARKETS® magazine, Bloomberg Businessweek magazine and the BLOOMBERG.COM® Web site provide news and insight to business leaders and financial professionals. For more information, please visit http://www.bloomberg.com .

The BLOOMBERG PROFESSIONAL service and data products are owned and distributed by Bloomberg Finance L.P. (BFLP) except that Bloomberg L.P. and its subsidiaries (BLP) distribute these products in Argentina, Bermuda, China, India, Japan and Korea. BLOOMBERG, BLOOMBERG NEWS, BLOOMBERG TELEVISION, BLOOMBERG RADIO, BLOOMBERG MARKETS AND BLOOMBERG.COM are trademarks and service marks of Bloomberg Finance L.P., a Delaware limited partnership, or its subsidiaries. All rights reserved.

Attributes

Other

Contact Information