EMISSIONS TRADING 2009

Carbon Prices Reflect an Uncertain Year
Matthew Berger, December 29, 2009 (Inter Press Service via Reuters/AlertNet)

"As what was supposed to be a breakthrough year for action on climate change comes to a close, one indicator of the disappointment surrounding an anti-climactic outcome in Copenhagen and stalled U.S. Senate legislation can be seen on the European Climate Exchange. The main exchange for the carbon emissions allowances that are traded as part of the European Union's Emissions Trading System saw carbon dioxide emissions drop to a six-month low of 12.4 euros in Copenhagen's aftermath and remain around that level since.

"Prices have been volatile throughout the ETS's first five years, but this year they dropped to an all-time low of eight euros in February, following a record high of just under 30 euros the previous July…For cap and trade approaches to greenhouse gas regulation to achieve their ends and provide the incentives that will push companies to invest in cleaner technologies, prices will need to be much higher…The International Energy Agency's World Energy Outlook for 2009 said carbon prices should be at 50 dollars (35 euros) a metric tonne in 2020 and 110 dollars (67 euros) in 2030 in order to stimulate investment…"

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"A major reason for the downturn in prices this year versus last is the economic recession, which has meant lower production, and thus lower emissions and less need for emissions allowances…But there are other factors at play as well. The price of carbon, as with that of any commodity, is seen as a function of demand…[Current low demand was also brought on] by the lowered expectations for carbon dioxide regulation following the disappointing summit in Denmark and the stalling of climate legislation in the U.S. Senate…

"…[T]here is growing pressure to allow more [normally lower-priced] offsets into the carbon trading system…[This could show] businesses expect carbon emissions prices to rise…Offsets include the Certified Emissions Reduction credits of the Kyoto Protocol's Clean Development Mechanism, which allow emitters in rich countries to invest in clean tech ventures in developing countries in exchange for credits to put toward their emissions cuts tallies, as well as programmes where emitters can pay for forests to be conserved or replanted…"

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"The U.S. House of Representatives passed a climate change bill…setting up a cap-and-trade system in the U.S. Like the ETS, the proposed U.S. system would limit industries' emissions and eventually force companies to pay for allowances to offset their emissions - or allow them to sell excess allowances if their emissions are lower than expected…The EU system and any future U.S. system are supposed to encourage a movement away from dependence on high-emitting, fossil-fuel[s]…But for businesses to be sufficiently motivated to reduce their emissions they need a price incentive.

"The non-binding international accord announced by the U.S., China, India, Brazil and South Africa and "taken note of" by the other countries is not likely to raise demand enough…[P]rices in the Regional Greenhouse Gas Initiative, which caps emissions in 10 northeastern U.S. states, dropped to around two dollars…[S]upply is easily overpowering demand…The EU ETS also faced the early problem of having allocated too many allowances at its start…But low prices…may simply be the unavoidable growing pains…[that] allowed emitters and markets time…[to learn to] operate under a cap…As for the future of cap and trade, currently low prices are not expected to, by themselves, slow the momentum toward a cap-and-trade system in the U.S. or elsewhere…"