Citing lower forecasts in 2009 output along with an increase in the number of firms announcing temporary shutdowns, analysts are scaling back their forecasts for carbon emissions and the price for allowances for those emissions. Societe Generale has cut their forecast for EUAs a third to 17 euros a ton. They went on to say prices could rise to 20 euros by 2012, sharply down from estimates earlier this year that prices would reach 37 euros during this timeframe.

Deutsche Bank believes EU emissions in 2009 could be 10% below 2007 levels. This would push emissions below allowances for 2009. The excess allowances for 2009 can be “banked” for use through 2012 and the forecasted emissions for 2009-2012 remain slightly above the EU carbon allowances. As a result of reduced emissions and smaller shortfall, UN-approved Certified Emission Reductions (CERs) which EU industry can import from developing nations to meet compliance, may be able to meet the entire shortfall. Price estimates for EUAs and CERs clearly indicate analysts believe CERs will set the pricing for EUAs for the next few years.

The good news is EU will be able to meet the allowances under phase 2 with a small “carbon price” in this recessionary period. This is also the bad news, as the lower price reduces the investment per ton of CO₂ available for carbon abatement projects. The net is by 2012, the European Union will have done less and perhaps much less to lower the Green House Gases (GHG) they produce per unit of energy they consume than anticipated when the allowance allocations were set.