Four out of five carbon markets experts in the €92bn global market have called for the EU to intervene to support the price of carbon allowances. But respondents warned that periodic tinkering with the market risks turning it into a casino.
The findings are published today at the industry’s annual congress in Cologne, in the 7th annual International Emissions Trading Association (IETA) survey of the IETA Board (including major international energy companies and traders) and other leading participants in the carbon market.
The EU Emissions Trading Scheme, the world’s largest carbon trading programme, has had to weather storms caused by recession and the eurozone crisis. Over 1000 facilities in Britain including hospitals, universities, factories and power plants use the scheme to buy and sell permits for their carbon emissions, in line with the UK’s legally binding carbon emission reduction targets. Prices have fallen 61% in just 12 months on the industry’s flagship EU Emissions Trading Scheme.
The three leading options for intervention included a move to a 30% reduction in CO2 emissions by 2020, a permanent set aside of allowances (ie taken out of trading), or an auction reserve price in the EU ETS.
* Expectations of future prices for EU Allowances are now 36% lower than three years ago (down to €19 from €30 in 2009) and 45% lower for CERs. But despite the pessimism, the respondents felt that market mechanisms remain at the forefront of policies to tackle emissions growth.
* Markets experts said new demand would be injected into the global market by viable markets emerging by 2020 in Australia, China and South Korea. Most thought a federal US scheme would emerge before 2020.
The international row on aviation’s inclusion in the scheme meant some respondents felt it could not be taken for granted that the sector would be included in the ETS. There was also widespread scepticism over the International Civil Aviation Organisation’s ability to broker a deal by 2015, with face saving bilateral treaties at a national level the most likely outcome.
Respondents were divided on whether new market mechanisms, would emerge before 2020. Almost half thought sectoral crediting would also emerge before the end of the decade.
Seven out of ten respondents said carbon markets and taxation would not be able to raise the estimated US$30bn annually expected by the UN to fund the Green Climate Fund. Conservative estimates from respondents say the funds are more likely to be 50%-83% lower in the range $5-15bn annually
Dirk Forrister, President and CEO, of IETA said: “In the minds of the private sector, and many governments, emissions trading is very much alive. The long-term view remains robust, because we know that if we are going to take steps to seriously address climate change, there is simply no more cost-effective way than a market mechanism to create a business incentive to reduce carbon emissions.”
Jonathan Grant, Director, PwC sustainability and climate change said: “The Durban Platform shored up confidence in the carbon markets, but its benefits were short lived. Market purists might argue that intervention risks undermining the stability of the market, but the reality is that the continued policy unpredictability and uncertainty is undermining it more. The market wants the EU to be decisive quickly.”