The Bleak European Carbon Market

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Across the globe, carbon emissions are trading at ridiculously low prices. European Union Allowances (EUAs), the most popular emissions traded, are at less than €10, or about $13, per ton. The United Nations Certified Emission Reductions (CERs) are at a similar low point. (See graph on the right courtesy of PointCarbon.) These prices are down by more than half of what they traded at a year ago.

The low prices aren’t going to improve anytime soon. Global manufacturing is down, so the need for carbon emissions is also down. More importantly though, in a few days a massive new instalment of 452 million tons of carbon emission credits are about to be rolled out by Germany.

With this low price for carbon credits, there is little incentive for buisnesses to clean up their practices. There is even less incentive for new businesses to employ cleaner, but more costly technology:

EE News (sub. req’d): Market watchers fear that continually weak CER prices are now the biggest threat to the health and growth of emission reduction projects in developing nations organised under the Clean Development Mechanism (CDM) system, a key part of international action against climate change linking developed and developing economies together.

Two weeks ago, carbon market analysts at IDEAcarbon warned that CER prices are so weak that developers can’t pull a profit from selling the emission reduction credits generated by carbon dioxide and methane abatement measures in India, China and elsewhere. Earlier, most analysts assumed that worldwide credit crunch and difficult financing environment were the biggest threats facing CDM project companies like EcoSecurities and Natsource.

While this will ding U.S. efforts to roll out a similar system, it shouldn’t. The U.S. can learn from the European mistakes and adjust accordingly. If a new business launches in down time with less than clean practices, in the long run the company will pay a price. Until then, though, the bottom of the market for carbon looks startlingly far away.

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