Price of carbon credits slumps to new low

The price of carbon has hit new lows as power generators and industrial companies
continue to cash in credits to bolster their balance sheets.

The price of European Union allowances under the second phase of the emissions
trading scheme has plunged to €10.15 ( £8.85) a tonne, compared with highs over
€30 seen in July last year.

Analysts at Barclays Capital warned the price could fall further to €9 and Utilyx,
the carbon information provider, said: “There seems to be no bottom to carbon
prices at the moment.” Market experts blame the decline on profit-taking and a
collapse in manufacturing, which plunged in Britain at the end of last year at
its fastest rate since the 1970s.

Power generators and industrial firms are selling off their credits to raise
cash but also because they are confident they will not need so many pollution permits at a time of falling demand for their products.

The decline in emissions is good for global warming but it also means that offset
projects, in which companies invest in green schemes to counter the impact of
their carbon production, are being cut back.

The slump in the price of credits under the ETS will also revive criticisms that
the cap and trade scheme has turned carbon into another volatile market commodity
used by speculators to make money.

Vincent de Rivaz, the chief executive of EDF Energy, told the Guardian last week
that the operations of the emissions trading scheme needed to be reviewed by Brussels
before carbon was turned into a “sub-prime tool” by unscrupulous companies instead
of doing the job it was set up for: reducing CO2 emissions.

EDF, the power company 85% owned by the French state, admitted it had sold some
of its carbon credits on the market but only in very small numbers with the rest
being transferred for use around the group’s other overseas businesses.

A research paper published by the environmental group WWF in combination with the Point Carbon consultancy last spring claimed that windfall profits of up to €70bn could be
made by the power groups in the course of phase two of the scheme, which runs
from 2008 to 2012.   They pointed out that there would have to be a high carbon
price to achieve those particular financial gains.

Sanjeev Kumar, emissions trading scheme co-ordinator at the WWF, warned: “The way the national allocations plans are set up is a disaster. Handing
free permits to power companies is like handing them a cash bonus.”   He added
that “cheap profits for doing nothing is scandalous”.

Deutsche Bank and others predict carbon prices will rise again as industrial
production picks up and the EU tightens the regulation on allowances, especially
for phase three of the scheme, to run to 2020. But analysts have been consistently
wrong about the direction of carbon prices, predicting 12 months ago that they
would double from €22 a tonne to over €40.

No one had thought the price of carbon would drop to nearly zero in the first
phase of the scheme, when the credits were all given out free, but since then
some credits have been auctioned to the highest bidder. The auction system is
expected to be used even more heavily in the third phase, which is still going
through the political approval process in Brussels.

Barack Obama’s new US administration is considering whether to set up its own
federal carbon emissions trading scheme, in another step towards a global trading scheme, but critics
say all these projects should be halted.

http://www.guardian.co.uk/environment/2009/feb/07/cost-carbon-credits-falls

see also

Guardian:

6 Feb 2009

Jeroen van der Veer: An effective response to global warming could help to revive
the world economy 

4 Feb 2009

Government falls short of carbon dioxide target 

30 Jan 2009

Carbon trading may be the new sub-prime, says energy boss 

23 Sep 2008

Pollution: Number of firms reporting on emissions targets falls