| LONDON, March 23
LONDON, March 23 An escalating political row
over the inclusion of airlines in the European Union emissions
trading scheme is eroding confidence in the world's biggest
carbon market and anchoring prices near record lows, analysts
and traders said on Friday.
India on Thursday joined China in asking its airlines to
boycott the EU carbon scheme, while Boeing threw its
weight behind rival Airbus in a growing chorus of opposition
against a scheme that will charge airlines for their emissions.
Rising tension over aviation is a thorn in the side of a
carbon market already oversupplied with hundreds of millions of
permits and flagging demand, as the euro zone's fiscal crisis
crimps economic growth.
"It all adds to the poor sentiment around carbon," Mark
Owen-Lloyd, of carbon and energy trader CF Partners, told
Reuters. "It's not helpful, since markets like certainty."
Benchmark EU carbon prices have shed around 20
percent since the start of the month.
On Thursday, they fell below 7 euros a tonne for the first
time since January 23, and were trading around 6.80 euros on
Friday, still above the 6.30 record low hit last December.
The EU emissions trading scheme (ETS) sets a cap on carbon
dioxide emissions from around 11,000 power and industrial plants
across the 27-nation bloc.
All airlines using EU airports had to join the scheme from
January 1, although their charge for emissions will not be known
until next year.
Matteo Mazzoni, analyst at Nomisma Energia, said the
aviation sector is likely to demand between 20 million and 50
million carbon permits to comply with the ETS in 2012, a
relatively small number compared with the glut of permit supply.
But any absence of such demand could affect carbon prices if
the EU backed down, Mazzoni said, adding: "We still think this
EU Climate Commissioner Connie Hedegaard has said the EU
will stand by its law unless the United Nations' International
Civil Aviation Organization formulates a global plan.
"Certainly the intensification of opposition does increase
the political stakes, although the EC (European Commission) does
look like it is holding firm," said Trevor Sikorski, head of
carbon research at Barclays Capital.
Given uncertainty about how the EU tackles oversupply in the
carbon market, he said: "The drip of opposition on aviation
certainly colours sentiment to the more bearish side."
The risk of the aviation sector exiting the cap-and-trade
scheme is being priced into the market, said Emmanuel Fages, a
carbon and energy analyst at Societe Generale.
He said the impact could hit carbon prices by 2 euros or
more, adding: "Nobody is buying because of this risk."