European carbon credits are trading today at prices almost half those of early November. Prices have fallen from more than 7.50 Euros per tonne of carbon dioxide or equivalent in early November to less than 4.00 Euros today, reported as being a record low price.
The oversupply of credits is blamed by some observers on excessive allocations to European industry. The European Emissions Trading Scheme is a ‘cap and trade’ scheme, operating through an initial allocation of allowances to industry and trading among companies to ensure that they have sufficient allowances on hand to cover all of their greenhouse gas emissions.
Though excessive allocations are one factor which has led to low prices, the economic downturn, energy efficiency initiatives by some companies, and a political debate in the European Parliament on managing the supply of future allowances are all playing significant roles in influencing market prices.
Many in industry still support the ‘cap and trade’ scheme as being one of the most efficient means of regulating greenhouse gas emissions but if prices stay at their current low level for too long there will be little incentive to increase energy efficiency. With no major carbon markets in North America, North American organizations often turn to European markets for sale of carbon credits from their international emission reduction projects. The low carbon prices on European markets will have a significant impact on such projects.
ETS prices can be followed on the European Energy Exchange AG website at http://www.eex.com/en/Market%20Data/Trading%20Data/Emission%20Rights/EU%20Emission%20Allowances%20%7C%20Spot