EU climate fight hit by new record low carbon price

LONDON Fri Nov 30, 2012 10:52am EST

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LONDON (Reuters) - The European Union's leadership in the fight against climate change, already under fire at U.N. talks in Qatar, suffered a further setback on Friday as the carbon market it created to help spur a switch to greener energy tumbled to a record low.

The $148 billion EU Emissions Trading Scheme is core to Europe's efforts to prompt utilities and industry to go green but carbon prices are currently far too low to provide that incentive.

Friday's fall in prices followed a decision by the European Commission to postpone a vote on a plan to help bolster the market until next year.

"Perversely, a plan to raise prices has so far done anything but," said one emissions trader, who wished to remain anonymous.

Carbon hit a record low of 5.89 euros per tonne while many analysts see a minimum price of at least 20 euros as necessary to convince industry and utilities to adopt cleaner forms of energy over coal and gas.

The plan which EU member states will vote on proposes to remove a portion of carbon permits from the market for several years in order to bolster demand.

"It will take another 6 months before the proposal is totally buried, then the price will crash to very low levels," said Per Lekander, managing director at UBS Investment Bank, who does not think the plan will be passed.

The EU ETS has been hurt by Europe's economic slowdown, which has lowered demand for carbon permits. Cheap gas and coal prices also make it harder to wean users off of them.

Analysts say it could take until after the 2013-2020 trading period before demand is sufficient to mop up the market's current oversupply of carbon permits.

"I think the scheme will eventually recover, but not until the economy is better and a fourth trading period starts in 2021," said UBS' Lekander.

The scheme, which was launched in 2005, caps carbon emissions on factories and power plants in the 27-nation bloc, forcing them to buy carbon permits if they exceed the limit.

Traders are eager for the Commission plan to be signed off by member states, so prices can regain some ground.

"Without the plan, there is no reason for prices to be above zero as the market is over-supplied well beyond 2020," said Kris Voorspools at Luxembourg-based consultancy 70Watt Capital.


The ETS is legislated to run until at least 2020 and a Commission spokesman said the scheme is "here to stay" despite a recent call by Italy for it to be replaced by a carbon tax.

It is the biggest emissions trading system in the world and plans to link with Australia's scheme by 2018. Yet many traders have left the market over the past couple of years due to a lack of confidence in its future.

As the European Commission looks at ways to address its underperformance, it also faces opposition from some countries, including coal-reliant Poland.

Germany also refuses to take a formal position until a clash between its economy and environment ministries is resolved.

If the Commission's plan to remove some permits from the market is approved in a vote now not due before February, it would become law possibly in the second half of 2013.

Carbon prices could rise to 15 euros or more in the 12-18 months afterwards, according to Deutsche Bank.

Yet that is still not high enough for large energy companies including Shell, BP and Dong Energy, who say that prices of between 20 and 50 euros are needed to justify investment in clean technologies such as carbon capture and storage.

"This episode is the clearest indication that we cannot rely solely on the scheme to deliver decarbonization and that more fundamental reforms are required," said Sanjeev Kumar, senior associate at consultancy E3G.

"Other instruments are incentivizing green investment like energy efficiency, renewables and very high oil prices. It is a case of what else we can do to speed up the investment process," he said.

One option includes raising the EU's emissions reduction target to 30 percent by 2020 from the current 20 percent, but the EU and the United States, the top rich emitters, have both said they will not increase planned cuts.

The EU prides itself on being a leader in the fight against climate change yet India and Brazil at U.N. talks in Doha, Qatar, on Thursday accused rich nations of doing too little.

World emissions of carbon dioxide rose about 3 percent last year, largely because of strong growth in emerging economies despite a slowdown in many rich nations.

As each faction presses its case, the Doha talks involving almost 200 nations are floundering in their bid to step up ways to slow a rise in temperatures that the U.N. panel of climate scientists says will trigger more floods, heatwaves, droughts and higher sea levels.

(Additional reporting by Barbara Lewis in Brussels; editing by William Hardy and Jason Neely)

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Comments (1)
The new figures for 2010 from the WMO show that CO2 levels are now at 389 parts per million, up from about 280 ppm compared to the mid 1700s. Negotiators from many nations will gather this month in Doha in a last ditch effort to find a replacement for the expiring Kyoto Protocol climate regulations of 1997. (AP, Nov. 21, 2012)

So with this historical peak in climate heating CO2 air pollution, why have not actual earth temperatures risen accordingly?

Here are some contemporary global temperature findings of well-respected, nonpartisan climate science experts:

• Long term NOAA climate data show no significant wet/dry climate trends related to CO2 levels;
• There are no extreme high temperature trends correlated to CO2 levels;
• No correlations are observed in CO2 levels with the number or intensity of weather disasters such as tornadoes, tsunamis and hurricanes;
• Current CO2 levels are below optimal for plant life, and doubling CO2 levels would only increase global temperatures by a nominal one degree;
• There would be positive impacts of global warming such as the doubling of CO2 and moderate warming would benefit humanity with better agricultural crop yields. (WSJ, Sept.14, 2012)
• According to Britain’s Meteorological Office, the world’s climate has cooled during 2011 and 2012. The figures show that, although global temperatures are still well above the long-term average, they have fallen significantly since 2010. (The Sunday Times, Nov. 18, 2012)

Dec 03, 2012 11:12am EST  --  Report as abuse
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