Isra-Mart srl: Carbon price crash warning

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A predicted oversupply of 1.9 billion tonnes of carbon permits in the EU's emissions trading scheme (ETS) between now and 2020 is risking a carbon price slump, according to a report by the environmental NGO Sandbag.

New research in the study 'Buckle up! Tighten the cap and avoid the carbon crash' says that the intended abatement covered by the excess carbon permits is equal to around a year's worth of carbon permits.

The group estimates that in Phase 2 of the ETS between 2008-2012, around 672 Mt (Million tonnes) of carbon will be banked, from an excess of 855 Mt, and carried over into Phase 3.

Added to the inflated Phase 3 baseline (totalling 1.2 billion over 2012–2020) this gives a total of 1.9 billion permits.

"The recent freefall in the price of carbon has a simple, underlying cause - a huge oversupply of permits," Damien Morris, the report's author, said in a statement.

"Our climate seatbelt is so loose it's almost useless, and Europe urgently needs to buckle up and remove at least 1.7 billion permits if it is to get its flagship policy back on track," he said.

The report blames a combination of oversupply carried over by industry from previous carbon trading periods, and a basing of the future cap on this over-allocation.

At least 1.7 billion carbon permits now need to be removed from the market to tighten the ETS and prevent a crash, Sandbag says.

"If Brussels fails to reform the ETS then it is setting up Europe to fail when it could so easily be leading the world," said Sandbag's founding director, Baroness Bryony Worthington.

"We urge politicians across Europe to support tightening the cap so that the emissions trading system can deliver a low-carbon Europe."