While you were distracted by crashing banks and clashing senators, you may have missed a small environmental earthquake. The price of carbon has collapsed.
In only three months, life has become a lot cheaper for polluters; the financial cost of warming the planet has plummeted in Europes emissions trading system (ETS) and the effectiveness of such a volatile market mechanism in curbing carbon is being questioned.
You may recall that the ETS is a mechanism to encourage businesses to reduce their carbon output. Europes larger companies are allocated permits to emit CO2 , and these allowances, called EUAs, can be traded on exchanges. Companies that emit less CO2 than their allocation can sell EUAs for cash, but inefficient polluters must buy EUAs or face bigger financial penalties.
The idea is that a shortfall in EUAs allocated by government will cause the carbon price to rise, stimulating investment in carbon reduction. Its a market solution to pollution, but this carbon market is showing a distressing tendency to behave like most financial markets – hysterically. In July, the right to spew out one tonne of CO2 from a chimney would have cost a power generator
Related posts: