Read any commentary or story on last year’s United Nations Conference on Climate Change, the words, disappointment, failure, unfortunate are likely to appear.
Now, at least in Europe we are witnessing real-world financial repercussions resulting from Copenhagen.
Prices of carbon emissions permits are falling in the EU’s cap and trade system, mainly because the unsuccessful Copenhagen conference did little to enforce current pollution regulations and even less to provide polluters with incentives to invest in clean energy. Another way to look at it, the longer pollution goes unchecked, the cheaper it becomes to emit greenhouse gasses.
Prior to the global economic crisis that has had a negative impact on energy demand, the EU had hoped to allot more than 2 billion permits a year through 2012. Polluters who emit more than their allowed quota, are required to buy additional permit to compensate for the extra emissions. Companies who have reduced emissions more than required can sell their surpluses. Under this plan, lawmakers in the EU set out to create a system where costs rise as demand for pollution rights increases. As with other commodity markets, when investor confidence lags, prices fall.
“There are surely two factors impacting carbon prices, the failed summit in Copenhagen and a probable surplus in the EU emissions-trading system” said Jacek Kaczorowski, chief executive officer of Poland’s Belchatow coal-fired power plant, Europe’s largest polluter.
“There is a bit of a panic in the carbon market as more and more trading houses come up with forecasts of large oversupply,” said Roman Richter, a trader at UniCredit Spa’s Carbon Solutions group in Munich. A sustainable recovery is unlikely this year.