Different scenarios can be considered to assess the volume of credits that will be circulating on the market for the coming years. The cap will depend, among others, on the emission reduction objective of the European Union, the set aside, and of the number of available CERs.
First of all, how long will be the market by the end of the second phase (December 2012)? Recently, a leaked draft of an official European Commision stated that 2.4 billion tons of EUAs should be aggregated in surplus by the end of the year. In addition, 100 million credits from the New Entrant Reserve should be auctioned. To top it all, new CERs will flood the marked: according to UNEP Risoe, 1.151 billion CERs should be issued by the end of 2012. Given the fact that 0.866 billion tons of CERs have been issued thus far, around 0.3 billion CERs should be issued by the end of the year.
This credit flooding by the end of phase 2 supports the need ot the currently debated 1.4 billion permit set aside by 2020. Whether or not the set aside will be decided impact largely the price must be computed in price forecast model (see chart below). Finally, another major factor for the volume available by 2020 shall be determined by the emission reduction objective adopted by the EU: Should it be 20%, as it is currently agreed, then 1.285 billion EUAs are to be auctioned by 2020. If the 30% objective is chosen, as the Denmark presidency is thriving for, then only 0.944 billion EUAs would be auctioned.