Carbon prices tumble to record low
By Pilita Clark and Jack Farchy
Financial Times
July 18, 2012 8:16 pm
Prices for UN-backed carbon credits sank to a record low in morning trading on Wednesday after doubts emerged about European Commission plans to prop up the bloc’s ailing emissions trading market.
Benchmark prices for certified emission reduction credits fell as much as 12.9 per cent from the previous day to a record low of €2.86 in early trading – a decline of 31 per cent from the start of July.
Allowances traded in the European Union’s emissions trading system, which the CER credits normally track, fell to a low of €6.80, down 11.5 per cent on the day and their lowest point since mid-June, before recovering to €7.18 later in the day.
Carbon prices have fallen to fresh lows at several points over the past nine months as a glut in the supply of EU credits has been exacerbated by sagging demand due to weak European economic conditions.
Some analysts believe carbon credits need to cost as much as €50 to drive the low-carbon investment that is a central plank of UN policy, so some EU countries, including Denmark and the UK, have been pushing for a plan to bolster the market. Others, such as Poland, which generates about 90 per cent of its electricity from carbon-intensive coal plants, have strongly opposed such moves.
However, Connie Hedegaard, the EU climate commissioner, said in April that she would publish a review of the carbon market before the summer holidays. This was expected to shore up prices by delaying sales of new allowances from next year – a temporary fix that it was thought could be done through regulatory changes.
Ms Hedegaard is also expected to outline more permanent reductions in later years, which will require a more time-consuming amendment of EU laws.
But on Tuesday night, reports emerged that the review was unlikely to say how many credits would be held back next year. Even this could require more complicated legal changes to the relevant EU directive, which some analysts said was worrying.
“The two things we’re surprised about is first, we are not even going to get a number, and second, and more important, it now seems the directive will have to be amended,” said Mark Lewis of Deutsche Bank.
“That’s where we get worried about slippage on timing, because once you start opening directives it becomes a can of worms. That’s why you saw that brutal sell-off in the market this morning.”
People familiar with the matter said they believed Ms Hedegaard was looking at a small legal change to achieve the temporary cuts, which would not take too much time, in order to ward off potential legal challenges to the regulation route.
Dr Peter Liese, environmental spokesman for the European People’s Party, the biggest political group in the European Parliament, said he was still confident Ms Hedegaard would produce a substantial action plan next week.
“The question is what exactly that action will be,” he said.
A spokesperson for Ms Hedegaard said the review was still on the commission’s agenda next week, but could not be discussed.
Copyright The Financial Times Limited 2012.
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