The price of a ton of carbon dioxide in the current phase of the trading system has fallen to record lows recently. And although there are few suggestions the price could collapse entirely, the recent drop still is a worrying reminder that a market-based system to reduce emissions can be subject to significant volatility.
In a boost for the system on Monday, however, a prominent research company, New Carbon Finance, said its calculations showed that the largest cause of a reduction in emissions in the European Union last year was attributable to the trading system — because it had encouraged greater use of gas in power generation rather than dirtier fuels like coal.
European emissions dropped by roughly 3 percent in 2008.
“Despite the large sell-off of industrial permits over the last few months that has caused the price of allowances to fall below fundamental levels,” New Carbon Finance said, “the existence of a carbon price in 2009 indicates that banking of allowances is taking place and the design of the scheme is working as originally intended by the European Union.”
The group said it still was awaiting official figures from European authorities that are expected two months from now, but it estimated that the carbon price was responsible for 40 percent of the fall in emissions last year, with the recession accounting for a further 30 percent.
Nonetheless, New Carbon Finance warned that, once the data for 2008 is fully compiled, it will reveal a surplus of credits.
A very large surplus of credits also existed in 2006 — when the carbon price collapsed.
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