Sagging carbon prices lost nearly 14% of their value yesterday (2 April) as recession and a warm winter sparked a predicted 2.6% drop in carbon emissions from the 10,000 installations covered by the EU’s Emissions Trading System (ETS) last year.
According to preliminary ‘like-for-like’ data released by the EU on 2 April, emissions covered by the ETS were 1.88 billion tones in 2011, a slight fall on the 2010 figure of 1.94 billion tones.
But those numbers were also 114 Million tonnes below the EU’s ETS cap, indicating that the market was over-supplied with carbon allowances for the third year in a row, and for the sixth in seven years.
The already-depressed carbon price dived from €7 to a record low of €6.14 by early afternoon on the news of yet more spare capacity on the market, before recovering.
Bjorn Inge Vik, a senior analyst at Point Carbon, insisted that the ETS was still working. “The main reason that emissions are down is the mild winter and the deteriorating economy towards the end of last year,” he told EURACTIV.
But because of “the sharp drop in carbon prices in the latter half of 2011, the impact from the ETS [on emissions] was probably less in 2011 than in 2010,” he added.
Last month, the European Parliament passed a compromise proposal enabling the EU executive to withhold carbon allowances to boost their market price before the third period of ETS trading begins in 2013.
The renewables industry believes such a move would send a price signal to investors that the EU was serious about seeing through its climate targets, so encouraging market stability and more green investment.
But carbon-intensive industries have been divided on the issue with companies such as Shell requesting that a billion carbon allowances be set-aside, while organisations including the European Chemical Industry Council (CEFIC) fear that such a move could damage their competitiveness.
Environmentalists reacted to the release of yesterday’s preliminary data with a call for urgent action
Jason Anderson, the head of climate and energy policy at World Wildlife Fund warned that the ETS was at risk of “imminent malfunctioning” and Damien Morris, a senior policy advisor to Sandbag cautioned that “the window is rapidly closing to fix the ETS”.
Both groups called for EU movement on set-asides. But Inge Vik said that even removing 750 million allowances from the system – close to the numbers requested by industry and environmentalists – would only increase the carbon price by two or three euros.
“It looks like we will be over-supplied until 2020 at least and probably for a few years after that as well,” he said.