Research editorial: Yet another victim of the crisis in Europe: the carbon market

20.01.2012

By Bruno Goutard, Analyst Sector Trends

 

While the deal struck during the Durban Summit brought a breath of optimism, it seems more and more likely that the green economy, highlighted in the recent Euler Hermes special report, won’t be immune from the fallouts of the current economic difficulties.

 

The impact of the Eurozone crisis

The allowance prices hit a record low in mid-December (6.30Eur), a decrease of over 50% from the beginning of the year. Despite the favorable outcome from the Durban Summit, Canada’s possible withdrawal from the Kyoto protocol recently contributed to this downward trend. But of course the growing concerns over the worsening European economic situation fuel the gloom and aggravate the imbalance of the market. In this context and without corrective action led by Brussels (requested by some companies), the allowances price is likely to remain low throughout next year.

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Influence on the efficiency of the ETS

Lingering undervalued prices of emission allowances may, most notably, interfere with companies’ decisions about whether or not to heavily invest in more eco-friendly technologies.

As a reminder, the EU Emission Trading System (EU ETS), launched in 2005, helps ensure the EU is in line with its goals for meeting Kyoto Protocol commitments. It includes 11,000 power stations and industrial plants and is planning for a broader implementation (air transport in 2012).  The European Union aims to cap greenhouse gas emissions by 21% below  2005 levels by 2020