Carbon prices in Phase III of the EU ETS

Forecasts of environmental control costs, and of energy demand / emissions, have persistently turned out to be too high. This note examines the lessons and their implications for carbon price projections. The EC’s Impact Assessment estimates carbon prices rising from €26/tCO2 in 2013 to €39/tCO2 by 2020, and some modelling studies conducted this year have projected higher prices. This note explains why, for the proposed emissions cap, realised prices are likely to be much lower than the models suggest, in the lower part of the range €20-40/tCO2.