EU ETS OK

EU Emissions Trading Scheme not hurt by low prices, yet
Nina Chestney (w/William Hardy), March 4, 2009 (Thomson Reuters)

"Falling carbon prices have raised questions about the credibility of the European Union's flagship trading scheme…But traders and analysts insist the scheme is working as a market mechanism should…

"Since 2005, the EU's Emissions Trading Scheme has imposed a cap on carbon emissions from factories and power plants…Since the economic slowdown, cash-strapped firms have been selling their permits to raise funds, causing prices to hit a low of 8.05 euros ($10.18) in February from nearly 31 euros last July."

The emissions market "Big Board." (click to enlarge)

"The scheme was designed to cap emissions, which it is achieving. As industrial output declines due to the recession, there are less emissions which means companies have less demand for permits…Some market experts say the fall in prices is a natural reaction to the recession and shows the scheme is working… If the scheme has shown it has worked in recession, it should also work when the economy recovers…

"The EU ETS has three trading cycles running to 2020. The first phase saw prices collapse to near zero after the EU gave out too many permits. Recent low prices have arisen from the recession and companies raising cash…The third phase, which runs from 2013-2020 is seen as the cycle in which these distortions will be put right…[I]t is hoped that they are forming investment decisions based on the future price of carbon…

"The EU ETS was not designed to deliver a 20 percent cut in European emissions by 2020 on its own, experts point out. Other policies are needed to complement it, such as energy efficiency strategies, renewable energy subsidies and carbon capture and storage…If prices fell to 5 or 6 euros for a sustained period of time in the lead up to important climate change talks in Copenhagen in December, the scheme could risk being damaged, however… "