by Damian Carrington
24 January 2013
Price of a permit to emit a tonne
fell to 2.81 after an EU vote against a
to support the struggling market
pollution - Aerial view of the Tata steelworks at Scunthorpe
The ETS aims to
reduce emissions from Europes entire energy and industrial sectors
The European Union's flagship climate policy, its emissions
trading scheme (ETS),
saw the price of carbon crash to a record low on Thursday after a
vote in Brussels against a proposal to support the struggling
The price of a permit to emit a tonne of carbon dioxide fell 40% at
one point to 2.81 today, far below its record high of 32, before
recovering to more than 4 later in the day.
The ETS, aimed at reducing emissions from Europe's entire energy and
industrial sectors, has been plagued by an oversupply of permits due
in part to over-generous initial allocations following lobbying by
"This should be the final wake-up
call both to governments and to the European parliament," said
Connie Hedegaard, EU climate commissioner.
"To those in industry who both say
that they want a strong EU ETS while they at the same time lobby
against the policies that can secure exactly that I say: it is
time to think twice.''
David Hone, climate change
adviser for oil company Shell, said policy makers needed to focus on
delivering a clear carbon price, rather than setting targets for
"Many in the business community have
been clear on this issue for over a decade - it's all about
putting a price on carbon."
"The dinosaurs of European industry are holding progress back at
the expense of all those businesses that would benefit," said
Lady Worthington, Labour peer and founder of carbon-trading
"The wrong people - those who have
not invested in energy efficiency and emissions reductions - get
rewarded if the carbon price is low."
Sandbag calculates that there will
be an excess of 2.2bn permits by 2020.
Thursday's freefall in the ETS was prompted by the energy and
industry committee of the European parliament opposing a proposal to
delay the release of 900m future permits, so-called "backloading".
This would limit supply in the capped
market and therefore support the carbon price.
Analysts believe such a move could raise
carbon prices to 15, but say prices above 20 are needed to give
utilities the incentive to make serious switches to lower carbon
"Until there is a clear will to give
legislative support to this market we cannot expect participants
to keep believing in it," said one emissions trader.
The European commission warned this week
that without action the carbon price could drop dramatically,
leaving the ETS irrelevant and EU energy and environment policy
Coal-intensive Poland is opposed to
reform, while the UK wants a more ambitious plan, with 1.2bn permits
delayed. Germany, the EU's most influential member on industrial
policy, is undecided.
The ETS was launched in 2005 and prices crashed during the first
trading period to near zero in 2007, because of the over-allocation
of permits. But traders today dismiss that collapse, blaming it on
early errors in the experimental phase of the market.
The carbon price hit a peak of 32 in
April 2006 and traded above 30 in 2008. Thursday's price is the
lowest since the second trading period began.
Thursday's vote is non-binding and more decisive votes will take
place in the environment committee in February and a European
parliament plenary session in March.
"There are good signs they will vote
the right way," said Lady Worthington, who supports the
postponement of permits but argues that many must be permanently
"I think there is a reasonably good
chance of getting the backloading measure passed by March."
"Few would disagree that the ETS - a
market-based cap and trade system - is the most cost-efficient
tool in EU climate politics. If in doubt look at all the big
economies now following the EU example by establishing similar
ETS systems: Australia, Korea, California and China."
Whatever the outcome in Brussels,
analysts say the ETS will limp along, even if the carbon price is so
low as to provide no incentive at all for emissions reductions,
because dismantling the scheme would be as complicated as reforming