Analysts have reduced price forecasts for EU carbon prices following the UK’s decision to withdraw from the European Union.

The decision to slash price forecasts has raised questions about the future of the European Emission Trading System (ETS), a Reuters poll showed on Friday.

Analysts have cut their forecasts by 9-18 percent and now expect prices to average 5.46 euros per tonne in 2016, 5.59 euros per tonne in 2017 and 6.02 euros per tonne in 2018 for EU Allowance (EUA) futures, the poll of eight analysts showed.
Brexit graphic
In April, analysts had forecast prices of 6.02, 6.78 and 7.10 euros per tonne.

Benchmark European carbon prices have fallen almost 20 per cent to around 4.70 euros since Britain voted to leave the EU on June 23 amid fears the country could exit the scheme.

“We think that the outcome of the Brexit vote is the only reason behind the price crash at the end of June,” said Thomson Reuters carbon analyst Marcus Ferdinand.

Britain is the second-largest emitter of greenhouse gases in Europe and as a result its utilities are among the largest buyers of permits in the ETS, which charges power plants and factories for every tonne of carbon dioxide (CO2) they emit.

Most analysts expected Britain to remain in the EU ETS, but said the vote outcome was still bearish for the market.

“We don’t believe Brexit will have an impact on the fundamentals of the market. What we see now is a loss of confidence which in a long market is hard to counterbalance,” said Matteo Mazzoni, analyst at Italian-based Nomisma Energia.

In the past Britain has been a champion of measures to drive up prices, but will no longer have influence to shape the market’s future regulations.

EU lawmakers are currently working on market reforms that will reduce the share of free carbon permits handed out after 2020 as part of an effort to fix the oversupply in the system and boost prices.