Posted by
BLOGASSAULT on Tuesday, February 24, 2009 10:37:45 AM
I have been posting on the EU's carbon trading market for some time now and knew it was only a matter of time before it all came down on itself;
and now it has.
The world’s two largest carbon markets have posted another week of record lows, sparking debate over the viability of carbon markets. The recession and the credit crisis combine to undermine the market, forcing benchmark prices in the EU ETS Phase II trade on the European Climate Exchange down to €8.50. CER carbon credits under the UN’s Clean Development Mechanism (CDM) traded almost €1 lower still.
“The financial crisis has meant that demand for emissions credits is lower, companies and governments don’t need the same reductions,” Capoor said. Projects still in the pipeline which don’t yet have prices fixed in contracts will now not go ahead in most cases, he added. Projects underway with fixed-price contracts should continue, such as is the norm in China. But in India, where project developers have been more inclined to hitch their prices to future EUA prices, many existing projects may also fall over.
The price slump has triggered a debate as to whether it’s a sign of the failure of carbon markets or just an example of the market working just as it was designed to do – adjusting price to meet economic circumstances.
Over at Instapundit, this story puts a more realistic spin on the real problem with this market.
A lot of the blame lies with governments that signed up to carbon trading as a neat idea, but then indulged polluters with luxurious quantities of permits. The excuse was that growth would soon see them bumping against the ceiling.
Instead, exchanges are in meltdown: a tonne of carbon has dropped to about €8, down from last year's summer peak of €31 and far below the €30-€45 range at which renewables can compete with fossil fuels.
In short, trying to manipulate the energy economy works for awhile, but the forces of the global economy will always overwhelm our best attempts at control. It's no differrent with banks or with farmers, once we put controls on capitolism, it will inevitably fail us.
Obama...are you listening?