Carbon Trading


Letter in the FT

"The prices paid for permits to produce carbon under the European Union’s emissions trading scheme suffered precipitous falls last December and in the early part of this year, tumbling from about €30 (£27) last summer to €15 in December before a fresh plunge to only about €8 in mid-February."

FT article


Prices for EU permits are nearly €14 ($18.4), up from a low of about €8 in February. Traders have priced in the effects of the recession driving down industrial production, and companies have largely stopped selling off permits to raise cash.

But volumes in the other main part of the market, the trade in carbon credits issued by the United Nations – 9 per cent of the market by value – fell about a third.

Trading in this market has been affected by uncertainty over what will replace the Kyoto protocol. The UN issues credits to carbon-cutting projects under the protocol, and these can be used by companies in the EU scheme to top up quotas.

The stream of finance for such projects is drying up, according to New Carbon Finance: the last new carbon fund, of $95m, was set up last year and no new money was raised in the first quarter of 2009.

The company forecast the carbon market would be worth about $120bn by the end of the year, broadly on a par with last year."

Article in FT


Guy Turner, director of New Carbon Finance, said: "In spite of the recession, a decline in carbon prices and uncertainty over what will happen after 2012 [when the current provisions of the Kyoto protocol expire], traders are taking this market seriously and trading more actively."

The bulk of the international market - about 84 per cent by value - is the European Union's emissions trading scheme, under which energy-intensive companies are issued a quota of carbon permits they may trade with one another. Trading in this market rose by 54 per cent, compared with the last quarter of 2008.

Prices for EU permits are nearly €14 ($18.4), up from a low of about €8 in February. Traders have priced in the effects of the recession driving down industrial production, and companies have largely stopped selling off permits to raise cash.

But volumes in the other main part of the market, the trade in carbon credits issued by the United Nations - 9 per cent of the market by value - fell about a third"

FT article

The current low prices for carbon dioxide mean that the value of the market is likely to drop by nearly one-third, from €92bn ($117bn) last year to €63bn this year, according to Point Carbon, a market analysis group part-owned by financial and industrial interests.

Falling emissions, resulting from lower activity in the recession, mean that companies need fewer permits under the European Union’s emissions trading scheme, the biggest section of the carbon market.

Prices for permits have fallen precipitously in recent weeks, reaching a low of €8.20 before bouncing back to stand at just less than €10 on Tuesday.

Last summer, the permits traded at more than €20.

Carbon credits are also issued by the United Nations to development projects that aim to cut pollution, particularly from energy generation in developing countries.

These could include wind farms or solar power plants that cut greenhouse gas emissions.

FT Article


Brussels lambasted the US and Australia yesterday for their inaction in cutting carbon dioxide emissions and stressed Europe's leading role in the battle against global warming. "Only EU leadership can break this impasse on a global agreement [post-Kyoto] to overcome climate change," Stavros Dimas, the EU's environment commissioner, told scientists from the UN's intergovernmental panel on climate change. The body is due to publish a report this week in Brussels on the impact of global warming.

What Mr Dimas knew - but did not tell the scientists, apparently - is that the EU's programme for cutting carbon, its two-year-old emissions trading scheme (ETS), remains in disarray.

The Democrats, who are now the majority party in the US Congress, and California's Republican governor, Arnold Schwarzenegger, are drafting plans for an American version of the carbon "cap-and-trade" scheme.

However, preliminary data on the scheme's performance last year - its second year of operation - showed that 93%, or about 9,000 of the 10,000 heavy industrial plants covered by the EU's trading scheme, emitted less carbon than their quota of free permits. The resulting 1%-1.5% rise in emissions was not as great as in 2005 but the spot price of a tonne of carbon fell by about a quarter to €1 (68p), at one point collapsing to just 92 cents.

Only a handful of countries shored up the market by issuing fewer emissions quotas than industry wanted. These included: Britain - where Drax, Europe's biggest coal-fired power plant, emitted 5m tonnes more than its 15.5m tonnes permit - Denmark, Ireland, Italy and Spain. The trading mechanism is designed to create scarcity, forcing up the price of carbon and prompting industries such as steel and power generation to invest in cleaner, greener technologies, such as renewable, carbon-free energy and, eventually, carbon capture and storage. So far, it is manifestly not working as planned"

Read more in the Guardian


Asked by MPs on the committee whether the European Emissions Trading scheme was insufficient to meet these targets, Humphrey Cadoux-Hudson, managing director of new nuclear build at EDF, agreed. "As currently framed today that is the case. What is needed are rules that will create a market that will allow us to create low-carbon technology."

"The thing that drives the price of something is certainty. The recording and verification of emissions creates uncertainty, as does the entry of new countries into the system."

Cadoux-Hudson said market "rules" are required because putting a value on carbon was difficult. "It's not something you can dig out of the ground."

Carbon trading is the key mechanism for reducing emissions and is likely to be central to discussions at the UN climate change summit in Copenhagen later this year.

"It may be that Copenhagen gives us a ray of light that we can trust long term prices but we haven't seen that in a sustainable price – we need a price signal right across the EU," he said.

Lord Nicholas Stern, who wrote the UK government's 2006 Stern review into the economics of climate change, has said that carbon markets are an essential element of climate change mitigation policy. But he has called for a floor price to be set to stabilise the market. Others have been scathing about the market mechanism though. The environmentalist James Lovelock has referred to them as a "scam"."

Read more in the Guardian

"Britain's biggest polluting companies are abusing a European emissions trading scheme (ETS) designed to tackle global warming by cashing in their carbon credits in order to bolster ailing balance sheets.

The sell-off has helped trigger a collapse in the price of carbon, making it cheaper to burn high-carbon fossil fuels and leading to a fall in the number of clean energy projects. The moves were seized on by environmentalists and other critics who have previously criticised the European Union's ETS for delivering more windfall profits for business than climate change.

"This [ETS] was not designed as a scheme to give corporates cheap short-term funding options in the face of a credit crunch meltdown where banks are not lending, but that appears to be what's happening," said Mark Lewis, a carbon analyst at Deutsche Bank."

Read more from the Guardian


As ministers prepare to raise money by selling off more carbon certificates to –polluting companies, Michael Grubb, economist at the Carbon Trust, said the ETS was being badly undermined by volatility and uncertainty as the financial crisis ate into a scheme that was meant to fight global warming.

"Very low carbon prices could wreak much damage on the credibility of emissions trading and undermine the EU's attempts to form a platform of leadership in the [forthcoming] Copenhagen [climate change] negotiations," Grubb said. "Moreover, the historic pattern of boom and bust points to [the] inherently volatile characteristic of emissions trading to date and the potential benefits of building in more robust design. There are various options that could be considered." Among these, he said, were reserve price auctions in which a minimum floor price is set.

Richard Gledhill, PwC's global climate change leader, said that volatility and low carbon prices were undermining the business case for long-term investment in emissions reductions."

More from the Guardian


The government has some good climate policies. It also has some bleeding disastrous ones, which appear to commit the United Kingdom to high carbon pollution for the entire period covered by the bill. A future Labour government would find itself snared by its own current policies. Surely it wouldn't be foolish enough to set such a trap for itself?

One policy alone seems to doom future governments to prosecution: the planned doubling of the capacity of the UK's airports by 2030. Using the Department for Transport's projections, I estimate that by 2050 aeroplanes will account for 91% of all the greenhouse gases the country should be producing. Under the less optimistic figures published by Defra, the environment department, the proportion rises to 258%.

Until now this hasn't been a problem: the government has refused to include aircraft pollution in the 2050 target. But following an amendment in the Lords, the draft bill imposes a duty on the government either to include it or to explain to parliament why it hasn't done so, within five years. The government claims that it might not be possible to add these gases to the UK's carbon budget because, "in the absence of an internationally agreed methodology", no one knows how to calculate what proportion of this pollution belongs to us.

It's a knotty problem, isn't it? If you were the government and you knew that 67% of the passengers using UK airports were residents of this country, could you work out what proportion of aircraft emissions should be counted in the UK's carbon budget? No? Me neither. Wouldn't know where to begin."

More from the Guardian

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