#CDM #climatefinance : Few Policy Options Available to Maintain Faith in EU Carbon Trading, Analysts Say
Few Policy Options Available to Maintain Faith in EU Carbon
Trading, Analysts Say
By Ali Qassim
May 1 (BNA – Daily Report for Executives) — LONDON—With low
carbon prices and a struggling economy in the European Union,
governments appear to be running out of policy options to
maintain confidence in the EU Emissions Trading System (ETS) as a
way to reduce greenhouse gas emissions, according to London-based
“It’s hard to overemphasize the lack of carbon policy” shown
by governments to handle this crisis, Kash Burchett, a European
energy analyst at IHS Global Insight, told BNA April 24.
Tom Greenwood, senior analyst of carbon markets at
IDEAcarbon Ltd., an independent and professional provider of
carbon ratings, said even the few options that have been brought
to the table, such as reducing the future volume of carbon
dioxide emission permits, are unlikely to fix the longer-term
problems with the ETS.
Depressed Carbon Prices
According to Burchett, last October, when the price of
European Emissions Allowances (EUAs) fell below the €10 ($13.20)
barrier for the first time in 20 months, it felt like a
significant development. “But now 10 euros feel like you’re
looking at a skyscraper.”
In early April, the price of EUAs—each of which represents
the right to emit 1 metric ton of carbon equivalent under the
ETS—inched close to €6 ($7.90), although the price returned to
above €7 ($9.30) in the third week of April, Burchett said.
At their highest level—in August 2008 just before the global
economic downturn began—EUAs traded at €28 ($37).
At current prices, the incentive for power plants and heavy
industry to switch even from coal to natural gas fuel is low, let
alone to renewable energy, Burchett said.
The Global CCS Institute estimated in a March 8 paper that
to make clean carbon storage technology profitable, carbon prices
would have to be at about €40 ($52.90).
Even more depressed are the prices of Certified Emission
Reductions (CERs), the tradable carbon units under the Kyoto
Protocol’s Clean Development Mechanism. CERs reached a record low
of €5 ($6.60) in March, according to the
IntercontinentalExchange’s Monthly Utilities Report for March.
According to IDEACarbon’s Greenwood, “if nothing was changed
on the regulatory front, the consensus is pretty much that by
2020, there will be an oversupply of CO2 emissions permits [equal
to] about 1.3 billion metric tons.”
Given the glut of permits and the continuing economic crisis
in Europe, the carbon price in fact “ought to be zero euros and
the fact that prices haven’t reached that low is due to the
expectation that politicians in Europe will do something to
change supply,” Greenwood said.
EU Climate Action Commissioner Connie Hedegaard on April 19
announced that the European Commission, the European Union’s
executive arm, would by the end of this year propose a plan to
amend the Auctioning Regulation to reduce the number of carbon
permits to be auctioned in the next phase of the ETS, which
begins in January 2013 (76 DER A-26, 4/20/12).
Even assuming the Commission manages to push through this
change in auctioning rules, Greenwood said, “the fundamental
problem with this option is that it would entail setting aside
this glut of permits until 2019, but this fails to tackle the
problem of oversupply of permits by 2020, which is the official
end of the third phase of the ETS.”
Carbon Price Floor Option
In any case, even coming to an agreement to temporarily set
aside permits for the beginning of the third phase appears
unlikely, given that Poland—a major user of coal energy—is
adamantly opposed to any changes, Greenwood said.
Burchett agreed that any changes without Poland on board
would be “very difficult.”
Some EU governments, such as the United Kingdom, are looking
at alternatives to encourage investment in cleaner energy, such
as the introduction of a carbon price floor.
Currently, the British Treasury has plans to introduce a
carbon price floor for the power sector starting at about £16
($26) per metric ton of carbon dioxide in 2013, rising to a
target price of £30 ($48.70) per metric ton in 2020.
The Czech Republic and Italy have also been looking at
versions of a carbon tax. “The problem is that these actions are
hardly a vote of confidence on the EU ETS,” Burchett said.
For More InformationThe IntercontinentalExchange’s March
2012 Monthly Utilities Report is available at