LONDON (Reuters) - Societe Generale cut its forecasts for European Union industrial emissions, saying an EU recession may depress EU carbon permit prices for years.
Prices for carbon permits traded under the EU's Emissions Trading Scheme in 2009 could average 17 euros a tonne, down a third from a previous forecast of 25.5 euros, it said.
"Prospects on emission levels for 2008 and 2009 reduce every day, with an increasing number of industrial firms announcing temporary shutdown ... and downward revised output productions for next year," SocGen carbon analyst Emmanuel Fages said.
The bank said EU Allowances could rise to 20 euros by 2012, down sharply from estimates of 37 euros made earlier this year and significantly below the 30 euros a tonne level experts say is needed to encourage corporate investment in clean technology.
Benchmark EUAs closed at 14.88 euros a tonne on Friday, down 50 percent from a two-year high hit in July.
"The very short-term outlook is still bearish with EUA prices following oil down on lack of demand," he said.
Traders said carbon prices have dropped because of a $100 fall in oil prices and from forward sales of EUAs by cash-strapped firms which anticipate lower emissions or have decided to borrow permits needed from quotas in future years.
Fages said 2009 EU ETS emissions would be around 2.081 billion tonnes, slightly under the annual EUA quota and some 100 million tonnes below his previous estimate, but added average annual emissions in the scheme's second phase (2008-2012) would still be above the allocated permits.
"Emissions will still be higher than the quotas distributed until 2012 (but) the shortfall in EUAs should be much lower than anticipated," Fages said, estimating the market's average annual EUA shortfall to 2012 at 84 million tonnes, down from previous estimates of 133 million.
Under new EU rules agreed on Friday, companies can bank EUAs through to the scheme's third phase, which starts in 2013.
Deutsche Bank cut its emissions forecasts earlier this month, saying EU emissions could fall by 10 percent below 2007 levels next year.
Prices for U.N.-approved carbon offsets, which EU industry can import from developing nations to lower the cost of meeting compliance targets, would also stay muted, Fages said.
CERs for 2009 delivery would price near 16.50 euros a tonne, down from estimates of 22.20 euros, he said, adding he expected them to rise to 18 euros by 2012.
Benchmark CERs hit 13.28 euros a tonne on Friday, down 10 euros from an all-time high of 23.38 euros set in July.
Fages said CERs had not fallen as rapidly because industry must pay for them, compared to EUAs most of which they receive for free. As a result, the EUA-CER spread has narrowed to near 1 euro, from 9 euros this summer.
Fages also sees a slim chance an overallocated EUA market will cause CERs to price above EUAs, which he said could then drive all CERs out of the EU ETS.
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(Reporting by Michael Szabo; Editing by Sue Thomas)
