US Carbon Credits to Average $26/ton

Under the federal cap-and-trade system proposed in the Kerry-Lieberman climate bill, carbon would average $26 in 2013-2020. With this price projection, analysts estimate the value of the carbon market to be $350 billion in 2020. The bill, named the American Power Act, includes a $12 price floor, rising by three per cent plus inflation each year. The price ceiling is set at $25, rising five per cent each year between 2014 and 2050.

The volume of allowances would be limited to 2.5 billion in 2013, increasing to 4 billion in 2016. The legislation allows for unlimited banking of allowances. A strategic reserve of 4 billion allowances could be tapped when the price hits the $25 ceiling as a cost containment mechanism. Without the cost containment measures, analysts say the allowances would cost more than the $26 average due to supply and demand, particularly after the industrial sector enters the system in 2016.

Similar to previous energy legislation proposals, the American Power Act contains several provisions to reduce the impact of energy prices on consumers. Some estimates show that two-thirds of the proceeds from the sale of allowances will go directly to consumers and manufacturers.