KfW/ZEW CO2-Survey: German Companies Actively Participate in EU Emissions Trading

The KfW/ZEW CO2-Barometer, which was released for the first time today, reflects a dynamically growing market for CO2 certificates in Europe. The survey is based on the EU emissions trading system (EU ETS), the first major transnational trading programme for greenhouse gases in the world. However, the database for the development of supply and demand as well as for the cost of emission certificates is rather incomplete at this point. This lack of information is reduced by a survey among German firms committed to emissions trading and international CO2 trading experts in the scope of the KfW/ZEW CO2-Barometer, which was jointly established by the KfW banking group and the Centre for European Economic Research.

"The aim of this new annual survey is to identify market developments and business strategies. This empirical basis can then be used to advance economic policy and new means of facilitation", says Dr. Norbert Irsch, head economist at KfW banking group.

The KfW/ZEW CO2-Barometer shows, that already 75 percent of the companies committed to emissions trading in Germany currently take part in the trading of CO2 certificates or are planning to do so. However, there is still a lack of trading activity in individual market segments due to insecurity and high transaction costs. This is true for the trading with certificates in the period after 2012, e.g. after the current trading period will be completed. On the other hand, the use of emissions reduction credits deriving from the project-based Kyoto mechanisms is also affected.

Considering the insecurities regarding the future Kyoto protocol, the companies' trading activities focus on the spot markets and futures markets in the trading period 2008-2012. In contrast, less than 17 percent of the German companies are already active or are planning an active participation in the post-2012 markets.

In order to achieve long-term planning reliability, the vast majority of market participants consider an extension of the regulation periods to be extremely important. Therefore it is essential for the future market developments to establish a legal framework for emissions trading after 2012 in good time. Moreover, market activities in the range of the Kyoto mechanism might benefit from a reduction of transaction costs and fewer risks.

In the scope of this survey, the majority of German companies and international experts do not expect the price for one EU emissions certificate (EUA) to exceed 18 EUR/tCO2 in December 2009 and 30 EUR/tCO2 in the period from 2013 to 2020. The cost for emissions reduction credits from developing and emerging countries (sCERs) is expected to be slightly lower: 16 EUR/tCO2 in December 2009 and 26 EUR/tCO2 in the period from 2013 to 2020. The expectations for the costs of CO2 will be updated and released quarterly in the scope of the KfW/ZEW CO2 Indicator.

The emission certificates, which were issued for the current second trading period of the EU ETS were shortened. However, the results of the KfW/ZEW CO2 Barometer 2009 show that the financial incentives for CO2 reduction measures haven't had a significant influence on the investment strategies of the companies involved. Although more than 55 percent of all companies have already realised prevention measures, CO2 reduction has only been a side-effect for the vast majority of companies (88 percent). For merely 6 percent of the companies, emissions reduction was a priority in their investment activities. However, higher prices for certificates are expected due to the decreasing upper limit of emissions. Their influence on investment activities will therefore rise. Dr. Anreas Löschel, environmental economist at the ZEW, says: "The EU emissions trading will rise in importance for German companies. It will gain full momentum when the cost of CO2 will sharply rise after 2012, as expected in the KfW/ZEW CO2 Barometer."

Contact

Prof. Dr. Andreas Löschel (ZEW), Phone: +49/621/1235-200, E-mail: loeschel@zew.de

Dr. Charis Pöthig (KfW), Telefon: 069/74314683, E-mail: charis.poethig@kfw.de