Europe's Carbon Market Close to Collapse

---

Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) -- The European Union's (E.U.'s) critical Emissions Trading Scheme (ETS) is in danger of falling apart unless Member States can agree on a rescue strategy.

The stark warning came from E.U. Commissioner for Climate Action Connie Hedegaard, as the price of carbon plummeted to an all-time low. The ETS is the world's largest carbon cap-and-trade program, and is the E.U.'s key mechanism for monitoring and tracking carbon emissions in Europe. It covers more than 11,500 power stations, factories and refineries in 30 countries, which are responsible for almost half of the E.U.'s CO2 emissions.

In recent years, the combination of chronic oversupply of carbon credits and crashing carbon prices has made investing in European renewable energy projects less attractive to investors. A collapse of the ETS would also harm the Union's efforts to reduce CO2 emissions by 2020.

"On a day where the carbon price at some point went below €3 it must be clear to all that when the Commission warned that the ETS price could drop dramatically it was not a false warning but a real possibility," Hedegaard said. "This is not the time to put the Commission's back-loading proposal on the backburner. On the contrary this should be the final wake-up call both to governments and to the European Parliament. Few would disagree that the ETS - a market-based cap and trade system - is the most cost-efficient tool in EU climate politics. If in doubt look at all the big economies now following the EU example by establishing similar ETS systems: Australia, Korea, California, China etc."

Last year, Hedegaard proposed a plan to review the auctioning rules and a delay the release of permits to deal with the oversupply problem. For additional information see April 27, 2012, article - E.U. to Fix Ailing Emissions Trading Scheme.

However, today, many E.U. countries cannot agree on an emergency plan. Poland is firmly against the back-loading plan, the U.K. will not agree unless 'conditions' are met and Germany remains on the fence. In terms of industries the electricity sector, represented by Eurelectric, is for back-loading while the chemical and aluminium industries are against it.

In August, Europe signed a landmark agreement with Australia designed to help prop up the ailing ETS in the future. Hedegaard and the Australian Minister for Climate Change and Energy Efficiency, Greg Combet, jointly announced that they will be linking their emissions trading systems - the first time that carbon trading systems would be integrated. The idea is that Australian companies will be able to purchase cheaper European Union (E.U.) carbon credits, which will in turn will boost the weak price of carbon credits in Europe and boost investment in renewables. However, the proposed link-up would not be completed until 2018 and the ETS is in need of urgent help. For additional information see August 30, 2012, article - Europe and Australia to Link Carbon Trading Systems.

In her warning, Hedegaard concluded: "The alternative [to the ETS] is a re-nationalisation of climate tools meaning a future patchwork of up to 27 different systems and taxes instead of one market creating a level playing field internally in Europe. To those in industry who both say that they want a strong EU ETS while they at the same time lobby against the policy that can secure exactly that I will say: It is time to think twice.''

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.