From: EurActive
Published January 25, 2013 05:45 AM

European Carbon Market in trouble

EU carbon prices briefly slid 40% to a record low after politicians opposed plans to support the market, raising concerns prices could hit zero and sending a warning to European governments to pull together in lowering carbon emissions.

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Prices in the EU's Emissions Trading System (ETS) on Thursday (24 January) dropped to €2.81 a metric tonne after a vote in the European Parliament's energy and industry committee opposing a scheme known as "backloading" - or supporting prices by extracting allowances from the market and reinjecting them later.

In volatile trade, they later climbed back above €4.

The European Commission warned this week that the price could drop dramatically and the scheme could become irrelevant unless parties agreed on a rescue plan.

"This should be the final wake-up call both to governments and the European Parliament," EU Climate Commissioner Connie Hedegaard said.

"The alternative 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."

The €110-billion scheme is core to Europe's efforts to prompt utilities and industry to go green but carbon prices are far too low to provide that incentive. Analysts say carbon prices need to be at least €20 to make utilities switch to lower carbon energy generation.

Launched in 2005, the scheme is now in its third trading phase and is legislated to run until at least 2020, which means it cannot be dismantled even if prices crash to zero.

Carbon price balance image via Shutterstock.

Read more at EurActiv.

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