March 8, 2012 / 1:12 PM / 8 years ago

Carbon fall economy impact dwarfed by high oil - HSBC

LONDON (Reuters) - Carbon prices mired near record lows are spurring worries over efforts to lower emissions yet high oil prices remain a far greater threat to global economic growth, HSBC said in a research note on Thursday.

A refinery of the Libyan/Swiss-owned Tamoil company is pictured in Collombey in southern Switzerland March 6, 2011. REUTERS/Denis Balibouse/Files

“We should be much more concerned about the growth-destroying effects of oil price hikes compared with the still modest and depressed carbon price,” analysts said.

The current oil price is equivalent to an almost unimaginable 153 euro carbon price, 17 times the current price of EU carbon permits, HSBC said.

“To put this all in perspective, the current EU ETS price of 8.6 euros a tonne, if applied across the economy, would have a comparative macro-economic impact of an oil price increase of just 3.3 euros a barrel,” the note said.

Benchmark EU carbon futures were trading at around 8.7 euros a tonne on Thursday, while Brent crude futures were around $125 a barrel.

Brent prices are up 57 percent over the past two years, reaching all-time highs in euros and pounds, driven by supply side concerns over Libya and Iran, rising demand from emerging markets and the impact of quantitative easing.

Eurozone economy concerns and permits oversupply have helped drive down the carbon price in the EU Emission Trading System (ETS) by around 37 percent over the same period.

Yet HSBC analysts warn high oil prices represent an “increasing drag” on the economy.

At current prices, the EU’s 2012 expenditure on crude oil would rise to 3.8 percent of GDP from 3.4 percent in 2008 while U.S. expenditure would climb to 5.4 percent of GDP from 4.8 percent.

Further, high oil prices offer only modest help in lowering carbon emissions, the analysts argued, estimating a 10 percent increase in the price would reduce emissions by only 0.2 percent in 2030.

Nor would driving oil prices far higher be an effective way of cutting emissions given the unacceptable economic costs, and much less so than a carbon tax, HSBC said.

Instead, energy efficiency would reduce both the oil burden and cut emissions, and save over 5.6 trillion euros by 2035, the analysts estimated.

Transport measures could help including tighter auto fuel efficiency standards, reforming fuel and car taxation to favour efficiency and a switch to the electric vehicles and rail networks.

Reporting by Nina Chestney; editing by Jason Neely

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