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Downturn Makes Carbon Credit Too Cheap

From the Gaia worshippers at Germany’s Der Spiegel:

Financial Crisis Drives Down Price of Pollution


As the economic effects of the financial crisis deepen, it has become surprisingly cheap to pollute. Prices for carbon dioxide emissions permits have fallen below 12 euro per ton. Some companies are selling them to generate much needed cash.

The ongoing financial crisis, as has become clear in recent weeks, is bad for both budgets and business. It is also, it turns out, bad for the environment.

Prices for carbon dioxide emission certificates in Europe have fallen drastically in recent weeks as companies have slowed down production to keep pace with falling demand. In addition, some companies have begun selling their certificates as a way of generating much needed — and otherwise difficult to obtain — cash. The result has been an oversupply of emissions certificates that has driven the price down below €12 ($15.58) for every ton of CO2 emitted. As recently as last summer the price was close to €30 ($38.94) per ton.

Such a low price is concerning for two reasons. On the one hand, it removes the incentive for companies to make improvements aimed at cutting back their greenhouse gas emissions. The idea behind the European Union Emission Trading Scheme is to create a financial disincentive to pollute. Analysts say that a price per ton of emissions of at least €20 is necessary before it becomes cost effective for companies to install environmentally friendly technology.

On the other hand, higher prices for CO2 emissions certificates mean a greater motivation for factories to switch from coal to natural gas for their energy needs. If pollution is cheap, there is less of a reason to convert to the cleaner-burning fuel.

The EU ETS, as the European Union’s CO2 permit system is known, is currently in its second trading period, the first having ended at the end of 2007. Factories are given emissions allowances for several years at a time for free — the current period runs until 2012. Should they emit more than their allotted permits allow, they are required to buy more permits on the open market. Should they pollute less, factories can sell their unneeded permits. The plan foresees a gradual elimination of free permit handouts toward a system in which all permits are auctioned off.

Currently, though, the permit market — with banks still reluctant to lend money — has proven itself a way for some companies to generate some much needed liquidity. A recent survey conducted by the Financial Times Deutschland shows that a number of mid-sized companies in Germany are selling CO2 emissions permits to fill financial holes. Indeed, the FTD even describes the case of the paper factory Scheufelen in southwestern Germany which managed to avoid a complete collapse by selling the majority of its pollution permits in December.

The low price of the permits is likely to mean that companies will delay technological improvements and run older, less efficient factories for longer. The result will be greater emissions than would have been the case were permit prices higher.

Talk about your unintended consequences.

Of course there is only one answer.

We must have a bailout for the carbon credit industry.

This article was posted by Steve on Monday, January 26th, 2009. Comments are currently closed.

7 Responses to “Downturn Makes Carbon Credit Too Cheap”

  1. Odie44 says:

    I am opening a new market for free trade – the Idiot Market.

    Ask and Bid to be based soley on free market standards.

    Plenty of supply, plenty of demand.

    $10 is par value. Currently, Obama is at .09 cents, luckily I have been naked shorting, in that billionaire way. Good thing I shorted 1,000,000 shares.

    I am set.

  2. proreason says:

    Indulgences Fire Sale – 5 cents.

    Send the money directly to me for your quickee absolution.

  3. Confucius says:

    Let’s hope this bankrupts Al Gore.

  4. pdsand says:

    Yet another failure of the free market. Why isn’t there greater regulation? I suppose the German government should step in, buy all these up at cheap prices and hold them until they can possibly sell them at a profit for the German taxpayer. Who I really feel bad for is all the companies that aggressively went green, and they’re now holding dirt cheap carbon credits that they were counting on being able to sell at exorbitant profits. They tried to please their lords and masters but it backfired.

    Completely off-topic. There is absolutely no possibility that the implementation and enforcement of this carbon credit scheme that has the possibility to turn a profitable company into an unprofitable company overnight, as well as plunge the power industry into bankruptcy, and then leave half the country without power and facing possible mass starvation, death and chaos as little green pissants try to charge half a million dollars for a carbon credit, or buy up the credits as private citizens and hold them with no intention of ever selling. This scheme that has the potential to literally destroy civilization on the sake of a little environmentalism can’t possibly have inspired any of the instability of the markets that is wreaking havoc on the economy right now, could it have? No? Well I’m glad that’s not it.

  5. Anonymoose says:

    How about showing how these “credits” actually work in removing CO2 from the air? I’m a little fuzzy on the concept and would appreciate a demonstration. …..smirk…….

  6. pinandpuller says:

    Some companies are going to exist merely to generate carbon credits for resale. Four employees, some phones and a PO box. I envision something like “Glengary Glenross.” Europe’s number one export is now carbon credits.

  7. proreason says:

    I’m giving into the carbon credit mania.

    For a dollar, I will capture a fart, and burn it. Since methane burns cleanly, this will prevent raw methane from entering the atmosphere and thus enhance life on earth.

    I hope AlToad doesn’t read this site, because his gaseous output exceeds even mine by leaps and bounds.

    For your carbon credit, send a check or money order to proreason, mark of the beast lane, death valley, CA

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