What a slump in carbon prices means for the future

Typography
It is getting progressively cheaper to pollute the atmosphere. The price of permits to emit carbon dioxide has crashed, falling to 9.30 euros ($12) per tonne of CO2 on Tuesday, close to the all-time low of 8 euros. In the medium to long term, this might affect the European Union's ability to meet its ambitious targets for reducing emissions by 20% by 2020 relative to 1990 levels. A low price is bound to have more immediate effects too.

It is getting progressively cheaper to pollute the atmosphere. The price of permits to emit carbon dioxide has crashed, falling to 9.30 euros ($12) per tonne of CO2 on Tuesday, close to the all-time low of 8 euros.

In the medium to long term, this might affect the European Union's ability to meet its ambitious targets for reducing emissions by 20% by 2020 relative to 1990 levels. A low price is bound to have more immediate effects too.

Will it affect the Kyoto targets?

Unlikely. Put simply, this is because the Kyoto targets are already built into the European carbon trading scheme – they contribute to determining how many permits are issued for trading. But because the emissions trading schemeworks in phases, and the current phase ends in 2012, there is no guarantee beyond that.

!ADVERTISEMENT!

So why do we care what happens to the price?

According to Andreas Arvanitakis, senior analyst at the trading consultancyPoint Carbon, the greatest risk is that companies lose interest in investing in low-carbon technologies such as ways of generating renewable energies.

Investors in future technologies don't have a financial crystal ball, so the decisions they make today are based mainly on the current market. The low and volatile price of carbon today is likely to affect investments in renewable energy technologies.

How much money a company makes from carbon capture and storage (CCS), for instance, depends on how expensive it is to put carbon in the atmosphere. If it's cheap and CCS is expensive, the company won't get a worthwhile return on its investment. The upshot is that companies may postpone any decision to invest.

Article Continues: http://www.newscientist.com/article/dn16583-what-a-slump-in-carbon-prices-means-for-the-future.html?DCMP=OTC-rss&nsref=climate-change