Lower economic growth forecasts have reduced by half the projected cost of meeting the European Union’s carbon emissions reduction goal, according to a new analysis.
European authorities have agreed to emission reduction targets on 1990 emissions levels of either 20% by 2020, or 30%, if other major countries follow suit and an international emissions agreement is signed.
Analysts New Carbon Finance said that even the cost of meeting the 30% reduction target is now less than last year’s prediction for meeting the 20% reduction.
New Carbon Finance recomputed its model of the European Emissions Trading Scheme with the latest forecasts of gross domestic product (GDP) for the 27 European countries covered by the scheme.
The deteriorating prospects for European economic growth over the next few years have reduced emissions forecasts by an average 7% compared to forecasts made in June 2008. This means that roughly 32% less abatement is needed to meet emissions targets, analysts said.
As a consequence price forecasts have also come down as have total compliance costs. The total costs of meeting the reduction targets for the EU ETS by 2020 are now 50% lower compared to the results from using last summers’ GDP projections.
Analsyts said the cost of meeting the 20% reduction target by 2020 is roughly EUR 157 billion and EUR 203 billion for the 30% target.
Guy Turner, director of New Carbon Finance, said: "The results from our analysis show that it is now far easier for developed economies to commit to emission reduction targets previously thought of as too stretching."