EU Carbon Market Uncertainty Continues

In the international environmental policy arena, the past two weeks have been a time of confusion. The EU was widely expected to raise it emissions reductions targets – currently set at 20% by 2020 – by a further ten percent to 30%.

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EU Emissions Map (2009 data; provided by Sandbag).

This would have a been a bold unilateral move at a time of policy uncertainty. It would also have been a risky move during an economic downturn which has seen the move’s former chief proposers – Germany and, to a lesser extent, France – hesitate due to the increased cost to national economies of achieving these more stringent targets. Furthermore, this did not include continuing worries over the state of the European carbon market, which is still perceived – argues The Economist as placing too low a price on carbon.

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Carbon Offsets Flow Map (provided by Sandbag)

Indeed, carbon allowance prices have fallen rapidly, from over 30 euros in 2008, to around 12 euros at the time of writing. This has taken place in a market which has already been notoriously jumpy, as the data presented in the following presentation shows:

This places a low price on emissions, and a low incentive on new cleantech developments, particularly at the project stage, when considering the fact that of the 15 largest CO2 emitters under the current EU Emissions Trading System (EU-ETS), fully 14 are power stations. And while overall emissions may have fallen in the past 12-14 months in the Eurozone, consulting firm Carbon Market Data has recently argued, in a recent report on the EU-ETS, that most of the decreases can in fact be attributed to the recent economic downturn.

At the time of writing, the situation remains confused, with some states – notably in the European south – too busy dealing with fiscal deficits and current account problems to ponder placing even more stringent requirements on their already groaning industrial systems and economies. Other states, such as the UK, are moving towards the 30% target anyway. In the midst of this, the European Commission has reiterated its support for a 30% target, but has stopped short of actually pushing for legislation to make the target a reality.

By Federico Caprotti, writing for Skipso from London