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Trading Carbon : November 2011
conditions. In October, Washington-based analysts at Thomson Reuters re-affirmed average price projections (2013--2020) for permits in the California programme at $36/t of CO2e. The analysts had cut the price forecast in August -- down from $40/t -- saying the drop was "due to a lower emission forecast for covered sectors". In July, the California Air Resources Board -- the cap-and- trade programme's regulator -- cut its total GHG emissions forecast for 2020 by 7 percent to 507 Mt of CO2e. It cited "the effects of the recent economic recession" as the main reason for the change. Based on the new projection, the state will have to make a reduction of about 80 Mt to meet its mandatory target of 427 Mt by 2020. "It is possible that the economy will continue to have a hard time recovering, which would push emissions further down," said Emilie Mazzacurati, head of carbon, North America at Thomson Reuters. "It's also possible that other elements, such as weather and fuel prices, would drive down emissions to the point where the programme could start slightly over-allocated," she said. But, she added, "the impact on the overall programme's supply and demand balance would be limited, because the cap is aggressive in the later compliance periods -- 2015 and after. The shortage in later years is what will drive prices and market dynamics through the entire programme." The table shows Thomson Reuters latest emissions forecasts for installations covered by the California scheme. The cap tightens significantly after 2015, when the programme is expanded to more industry sectors. The make-up of the state's economy would also help to limit the effect of another recession. "California's economy is different to a lot of places," said Dirk Forrister, principal at Colorado-based environmental and energy consultancy Forrister Advisory. "(It) is fairly de-carbonised ... and is much less coal dependent than a lot of US states," he said. "Much of (California's) economic growth is attributed to high-tech industries that are not emissions intensive. There's california cushion California's carbon cap-and-trade system is not as vulnerable as Europe's Emissions Trading Scheme (EU ETS) to ongoing economic problems, say experts. The US state's programme, which is planned to start in 2013, is not immune to another recession, but differences between California's and Europe's economies would make the impact softer, they say. In recent months, as global economic conditions have worsened once again, analysts have slashed price projections for carbon dioxide allowances (EUAs) in the European programme. And many of them now predict that the scheme's third phase (2013--2020) could be over-supplied for much, if not all, of the period. The overwhelming reason for this analysis is the state of Europe's economy (see Trading Carbon, October 2011, pages 12--15). The 2008--2009 financial crisis had already seen greenhouse gas (GHG) emissions fall below projected levels, as economic activity declined across Europe. Therefore, many facilities with carbon caps under the EU ETS found themselves with a surplus of EUAs and UN offsets -- which can also be used for compliance purposes. Further economic depression will only exacerbate this situation, despite tighter targets on GHGs from 2013. California's emissions have also been affected by economic 16 NORTH AMERICA HOW MUCH IMPACT WOULD ANOTHER RECESSION IN THE US HAVE ON CALIFORNIA'S PLANS FOR CARBON CAP-AND-TRADE? ROBIN LANCASTER REPORTS The shortage in later years will drive prices and market dynamics Emilie Mazzacurati, Thomson Reuters REUTERS/LUCY NICHOLSON California Governor Jerry Brown: clean energy policy supporter November 2011 www.pointcarbon.com
December - January 2011