* Carbon price hits fresh record low, struggle seen until
* Price too low to encourage switch to clean energy
* U.N. climate change talks under way in Qatar
By Nina Chestney
LONDON, Nov 30 The European Union's leadership
in the fight against climate change, already under fire at U.N.
talks in Qatar, suffered a further setback on Friday as the
carbon market it created to help spur a switch to greener energy
tumbled to a record low.
The $148 billion EU Emissions Trading Scheme is core to
Europe's efforts to prompt utilities and industry to go green
but carbon prices are currently far too low to provide that
Friday's fall in prices followed a decision by the European
Commission to postpone a vote on a plan to help bolster the
market until next year.
"Perversely, a plan to raise prices has so far done anything
but," said one emissions trader, who wished to remain anonymous.
Carbon hit a record low of 5.89 euros per tonne while many
analysts see a minimum price of at least 20 euros as necessary
to convince industry and utilities to adopt cleaner forms of
energy over coal and gas.
The plan which EU member states will vote on proposes to
remove a portion of carbon permits from the market for several
years in order to bolster demand.
"It will take another 6 months before the proposal is
totally buried, then the price will crash to very low levels,"
said Per Lekander, managing director at UBS Investment Bank, who
does not think the plan will be passed.
The EU ETS has been hurt by Europe's economic slowdown,
which has lowered demand for carbon permits. Cheap gas and coal
prices also make it harder to wean users off of them.
Analysts say it could take until after the 2013-2020 trading
period before demand is sufficient to mop up the market's
current oversupply of carbon permits.
"I think the scheme will eventually recover, but not until
the economy is better and a fourth trading period starts in
2021," said UBS' Lekander.
The scheme, which was launched in 2005, caps carbon
emissions on factories and power plants in the 27-nation bloc,
forcing them to buy carbon permits if they exceed the limit.
Traders are eager for the Commission plan to be signed off
by member states, so prices can regain some ground.
"Without the plan, there is no reason for prices to be above
zero as the market is over-supplied well beyond 2020," said Kris
Voorspools at Luxembourg-based consultancy 70Watt Capital.
The ETS is legislated to run until at least 2020 and a
Commission spokesman said the scheme is "here to stay" despite a
recent call by Italy for it to be replaced by a carbon tax.
It is the biggest emissions trading system in the world and
plans to link with Australia's scheme by 2018. Yet many traders
have left the market over the past couple of years due to a lack
of confidence in its future.
As the European Commission looks at ways to address its
underperformance, it also faces opposition from some countries,
including coal-reliant Poland.
Germany also refuses to take a formal position until a clash
between its economy and environment ministries is resolved.
If the Commission's plan to remove some permits from the
market is approved in a vote now not due before February, it
would become law possibly in the second half of 2013.
Carbon prices could rise to 15 euros or more in the 12-18
months afterwards, according to Deutsche Bank.
Yet that is still not high enough for large energy companies
including Shell, BP and Dong Energy,
who say that prices of between 20 and 50 euros are needed to
justify investment in clean technologies such as carbon capture
"This episode is the clearest indication that we cannot rely
solely on the scheme to deliver decarbonisation and that more
fundamental reforms are required," said Sanjeev Kumar, senior
associate at consultancy E3G.
"Other instruments are incentivising green investment like
energy efficiency, renewables and very high oil prices. It is a
case of what else we can do to speed up the investment process,"
One option includes raising the EU's emissions reduction
target to 30 percent by 2020 from the current 20 percent, but
the EU and the United States, the top rich emitters, have both
said they will not increase planned cuts.
The EU prides itself on being a leader in the fight against
climate change yet India and Brazil at U.N. talks in Doha,
Qatar, on Thursday accused rich nations of doing too little.
World emissions of carbon dioxide rose about 3 percent last
year, largely because of strong growth in emerging economies
despite a slowdown in many rich nations.
As each faction presses its case, the Doha talks involving
almost 200 nations are floundering in their bid to step up ways
to slow a rise in temperatures that the U.N. panel of climate
scientists says will trigger more floods, heatwaves, droughts
and higher sea levels. ž