The price of carbon dioxide allowances could increase sevenfold between now and 2020 if the EU is to meet its goal of reducing carbon emissions by 30 percent over 1990 levels, according to a report from energy/environment analyst firm ICF International.

“EU ETS (emissions trading system) participants should look beyond the current economic and credit crisis and adopt a long-term carbon market strategy that anticipates a sharp rise in demand for emission reductions over the next five years,” said carbon analyst Diane Simiu. “Anyone going for the ‘dash-for-cash’ approach is in for a rude awakening when the carbon market picks up.”

“European Power and Carbon Outlook 2009-2030 “examines how EU climate and energy laws and the current economic crises are likely to affect European power and carbon markets. The report is aimed at utilities, industry, financial institutions and other organisations looking to make strategic decisions based on long-term carbon and power market expectations.

The report finds that meeting 2020 renewable energy 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.

“Participants in the EU ETS carry significant future exposure to whether or not renewable targets are met,” said Neil Cornelius, head of ICF’s European energy markets. “In the case of the power sector, there is a very material impact on the viability of non-renewable investments and assets, so this goes to the heart of portfolio decisions.”

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