European carbon prices along with electricity costs could rise over the next three years unless utilities have earlier access to future carbon permits, according to the EU electricity association Eurelectric, reports Reuters.
The EU is working on auctioning carbon permit rules for the third phase of its Emissions Trading Scheme (ETS), under which, starting in 2013, electricity companies will have to pay for permits to emit each ton of CO2 they generate, reports Reuters. Currently the permits are free.
Eurelectric told Reuters that much of the power generated in 2013 and beyond would have to be contracted before then, so electricity companies would need to buy carbon permits much earlier. The industry group is calling for access to phase three allowances by mid-2011 or the ability to use future auctions, according to Reuters.
If they don’t receive an early supply of phase three allowances, Eurelectric estimates that carbon pricing will rise about an extra 45 to 65 euros ($68 to $98) per EUA (allowance) before the end of 2012, which could translate into additional electricity costs of up to 50 billion euros ($75.2 billion) by 2012, reports Reuters.
Some of the largest financial institutions including JP Morgan, Morgan Stanley, Citigroup, BNP Paribas, Barclays, Deutsche Bank, Citigroup, Credit Suisse are just a few financial houses calling for emissions trading schemes, reports the JoNova blog. Carbon trading is project to grow to a $2 trillion to $10 trillion market, from $126 billion in 2008, the biggest commodity traded globally, according to the blog.
However, the blog suspects that a sub-prime-like carbon market is on the horizon for several reasons such as the carbon trading market is not based on a commodity but on unverifiable and unauditable permits; they have no value other than what the government says they are worth; and there is potential for fraud and corruption. As an example, two of Europe’s top auditors have been suspended over the past 12 months.