Price of carbon credits slumps to new low

• Cost of pollution falling with 'no bottom in sight' • US considers whether to imitate criticised scheme
Terry Macalister
The Guardian, Saturday 7 February 2009

The price of carbon has hit new lows as power generators and industrial companies continue to cash in credits to bolster their balance sheets.
The price of European Union allowances under the second phase of the emissions trading scheme has plunged to €10.15 (£8.85) a tonne, compared with highs over €30 seen in July last year.
Analysts at Barclays Capital warned the price could fall further to €9 and Utilyx, the carbon information provider, said: "There seems to be no bottom to carbon prices at the moment." Market experts blame the decline on profit-taking and a collapse in manufacturing, which plunged in Britain at the end of last year at its fastest rate since the 1970s.
Power generators and industrial firms are selling off their credits to raise cash but also because they are confident they will not need so many pollution permits at a time of falling demand for their products.
The decline in emissions is good for global warming but it also means that offset projects, in which companies invest in green schemes to counter the impact of their carbon production, are being cut back.
The slump in the price of credits under the ETS will also revive criticisms that the cap and trade scheme has turned carbon into another volatile market commodity used by speculators to make money.
Vincent de Rivaz, the chief executive of EDF Energy, told the Guardian last week that the operations of the emissions trading scheme needed to be reviewed by Brussels before carbon was turned into a "sub-prime tool" by unscrupulous companies instead of doing the job it was set up for: reducing CO2 emissions.
EDF, the power company 85% owned by the French state, admitted it had sold some of its carbon credits on the market but only in very small numbers with the rest being transferred for use around the group's other overseas businesses.
A research paper published by the environmental group WWF in combination with the Point Carbon consultancy last spring claimed that windfall profits of up to €70bn could be made by the power groups in the course of phase two of the scheme, which runs from 2008 to 2012. They pointed out that there would have to be a high carbon price to achieve those particular financial gains.
Sanjeev Kumar, emissions trading scheme co-ordinator at the WWF, warned: "The way the national allocations plans are set up is a disaster. Handing free permits to power companies is like handing them a cash bonus." He added that "cheap profits for doing nothing is scandalous".
Deutsche Bank and others predict carbon prices will rise again as industrial production picks up and the EU tightens the regulation on allowances, especially for phase three of the scheme, to run to 2020. But analysts have been consistently wrong about the direction of carbon prices, predicting 12 months ago that they would double from €22 a tonne to over €40.
No one had thought the price of carbon would drop to nearly zero in the first phase of the scheme, when the credits were all given out free, but since then some credits have been auctioned to the highest bidder. The auction system is expected to be used even more heavily in the third phase, which is still going through the political approval process in Brussels.
Barack Obama's new US administration is considering whether to set up its own federal carbon emissions trading scheme, in another step towards a global trading scheme, but critics say all these projects should be halted.