EU Goal Will Raise Price of CO2 Allowances, Report Says

In its recently released "European Power and Carbon Outlook 2009-2030," ICF International projects a sevenfold increase in the price of carbon dioxide (CO2) allowances by 2020, as compared to February 2009 levels, if the European Union (EU) is to meet its goal of reducing emissions by 30 percent between 1990 and 2020.

European Outlook examines the interrelated dynamics of the European power and carbon markets in light of the EU energy and climate legislative package voted in December 2008 and the current economic crisis. It is designed to help utilities, industrials, financial institutions, and other market participants make strategic operational and investment decisions based on long-term carbon and power market views. The study provides a comprehensive, integrated view of EU carbon prices, emissions, and sources of abatement. It also captures wholesale electricity prices, build mix, future capacity, and generation by region, between 2009 and 2030.

Reaching the ambitious target of procuring 20 percent of the EU’s energy from renewable sources by 2020 will require investment in higher cost renewable energy, as well as investment in supporting energy infrastructure in order to move the energy to market. ICF’s analysis shows that if the renewables target is missed, a portion of the costs of meeting CO2 targets will shift from renewable subsidies to electricity prices. Indeed, meeting 2020 targets will require substantial investments in gas-fired capacity, and later in carbon capture and storage. The cost of these investments, once factored into electricity prices, will cause them to double between 2010 and 2020.

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