European carbon prices could soar in the next three years, pushing up electricity prices with them, unless electricity companies have greater access to future carbon permits, EU industry body Eurelectric said on Monday.
European Union officials are fine-tuning the rules for auctioning permits to emit carbon dioxide during the third phase of the EU's carbon market, the Emissions Trading Scheme (ETS).
During the third phase, from 2013, electricity companies will have to start paying for permits to emit each tonne of CO2 that is created as they generate electricity by burning fossil fuels. They currently receive the permits for free.
But Eurelectric said much of the power generated in 2013 and beyond would have to be contracted before then, and electricity companies would therefore need to buy a corresponding amount of carbon permits much earlier.
Without an early supply of phase three allowances, this scenario is likely to put significant upward pressure on carbon prices: in our estimation, by as much as an extra 45 - 65 euros per EUA (allowance) before the end of 2012, it said in a letter to EU governments.
There is a serious risk that failure to address these issues in a timely manner will result in carbon prices -- and therefore electricity prices -- being driven higher, it added.
According to our calculations, there is the prospect under the most severe outcome that European electricity customers could face additional costs of up to 50 billion euros ($75.2 billion) by 2012, it added.
The industry group called for access to phase three allowances from mid-2011 or for the ability to use futures auctions to overcome the constraints.
Some analysis is available at the group's website www.eurelectric.org/auctioning.
(Reporting by Pete Harrison; editing by James Jukwey)