The European Union’s cap-and-trade system took a huge hit on Thursday, with carbon prices plummeting a record 40 percent after a panel rejected a plan to delay emission permit sales to alleviate the overabundance of permits already in the system.
“The market is panicking, really,” Daniel Rossetto, managing director of Climate Mundial, told Bloomberg, adding that traders fear that Europe’s carbon emissions market won’t continue past 2020.
An excess of carbon emission permits in the 54 billion euro trading system drove the price down 91 percent from its record high in April 2006. Carbon permit prices sank to a record low of 2.81 euros ($3.75) per metric ton immediately after the panel rejected the EU plan. However, prices slightly rebounded to 4.33 euros per metric ton.
“This should be the final wake-up call,” said EU Climate Commissioner Connie Hedegaard in a statement. “Something has to be done urgently. I can therefore only appeal to the governments and the European Parliament to act responsibly.”
The European Commission wanted to temporarily delay the sale of 900 million permits to alleviate the current overabundance. Analysts say this move would have boosted prices, but not high enough to provide sufficient incentives for utilities to switch to cleaner energy sources, reports the Guardian.
However, the plan was met with resistance from various governments, industries, and lawmakers.
Joachim Pfeiffer, economy spokesperson for German Chancellor Angela Merkel’s party, said the plan was “absurd” and would impose higher costs on German industry.Reuters reports that the bank Societe Generale cut its EU carbon price forecast from 2013 to 2015 by 30 percent, due to prices plunging to record lows.
“Negative news and events relating to the EU [Emissions Trading System] continue to pile up and come from all sides. So it is not at all surprising that EUA prices have fallen and have continued to be quite volatile,” they said. “The EU ETS has become a one-way market, spiraling down.”
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- EU Carbon Permits ‘Worthless’ Without Change of Rules, UBS Says (bloomberg.com)
- Carbon price under EU emissions Trading System hits all-time low (seeker401.wordpress.com)
- EU Carbon Market Is at Risk of Total Collapse, Lawmaker Says (bloomberg.com)
- EU’s carbon market suffers after parliamentary vote (reuters.com)
- EU carbon price crashes to record low (aftermathnews.wordpress.com)
- EU carbon price crashes to record low (junkscience.com)
The documents, due to be presented to the G20 finance ministers in November, also suggest that countries redirect “climate aid” money already pledged, towards the propping up ailing carbon markets.
The Mobilizing Climate Finance paper, seen in draft form by the Guardian, has been prepared at the request of the world’s leading economies. It is likely to provide a template for action in the UN climate talks that resume in Panama next week, in preparation for a major meeting of 194 countries in Durban in November.
According to the confidential paper, there is little likelihood that in the current economic climate, public money will be available for raising the $30bn rich countries have pledged for the 2010-2012 period, and the $100bn a year that must be found by 2020. Instead, says the paper, “the large financial flows required for climate stabilization and adaptation will, in the long run, be mainly private in composition”.
It says: “A starting point should be the removal of subsidies on fossil fuel use. New OECD estimates indicate that reported fossil fuel production and consumption supports in Annex II countries [24 OECD countries] amounted to about $40-$60bn per year in 2005-2010 … if reforms resulted in 20% of the current level of support being redirected to public climate finance, this could yield $10bn per year.
“Reform of fossil fuel subsidies in developed countries is a promising near-term option because of its potential to improve economic efficiency and raise revenue in addition to environmental benefits.”
New analysis, says the paper, suggests that half the $50bn-a-year fossil fuel subsidies go to the oil industry, and around a quarter to coal and natural gas. It says: “About two-thirds of total fossil fuel support in 2010 was estimated to be for consumer support, with a little over 20% being producer support.”
Developing countries are increasingly frustrated by the refusal of rich countries to meet their climate finance pledges. But they are unlikely to approve of the bank’s innovative proposal that some of the money pledged to them should be used to prop up struggling carbon markets.
The report proposes: “Governments could make innovative uses of climate finance to sustain momentum in the market while new initiatives are being developed. They could, for example, dedicate a fraction of their international climate finance pledges to procure carbon credits for testing and showcasing new approaches, such as country programme concepts, new methodologies, CDM reforms and new mechanisms.
“This would be a cost-efficient use of climate finance as it would target least cost-options and would be performance-based. It would also help build up a supply pipeline for a future scaled-up market, preventing future supply shortages and price pressures.”
It also appears to back a levy on aviation and maritime fuels. “Increasing from zero a tax on an activity that causes environmental damage is likely to be a more efficient way to raise revenue than would be increasing a tax that already causes significant distortion.”
“A globally implemented carbon charge of $25/tonne CO2 on fuel used could raise around $13bn from international aviation and around $26bn from international maritime transport in 2020, while reducing CO2 emissions from each industry by around 5 to 10%. Compensating developing countries for the economic harm they might suffer from such charges … seems unlikely to require more than 40% of global revenues. This would leave about $24bn or more for climate finance or other uses,” says the paper.
Last month, the UK shipping industry’s trade body roundly rejected calls to be brought into the EU’s carbon trading scheme, saying that any solution to reducing the industry’s emissions must be global.
- Paper on climate financing targets fuel subsidies (seattletimes.nwsource.com)
- India Said to Consider Doubling ONGC’s Fuel Subsidy Bill (businessweek.com)
- China, India, Brazil Doing More to Cut Carbon Emissions Cuts Than USA, Canada, Australia (stephenleahy.net)
- James Hansen On the Easter Bunny Myth of Renewables and His Plan for a Carbon Tax (bigthink.com)