Carbon crunch clouds U.S. cap program
As demand for goods has dropped, so too has the amount of pollution produced by manufacturing plants. In European carbon markets, pollution permits are down nearly 70%. Now some are questioning if carbon markets are worth the price to reduce global emissions. Sam Eaton reports.
Stacks emit steam at the Jim Bridger Power Plant near Point of Rocks, Wy. (Michael Smith / Getty Images)
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Kai Ryssdal: Go ahead and think about this if the economy is keeping you up at night. As demand for everything from toys to rolled steel has dropped, so too has the amount of pollution generated by all the plants that make all those things. That in turn is playing out in the European carbon markets, where traders buy and sell permits for the right to pollute.
Applying the laws of supply and demand here, there is less demand for pollution if there is less demand for production. And in fact, since July, those permits are down nearly 70 percent. From the Marketplace Sustainability Desk, Sam Eaton reports.
Sam Eaton: The European carbon market was set up by countries that signed on to the Kyoto climate treaty. It basically allows polluters to buy and sell the right to release greenhouse gas emissions into the atmosphere. Each credit is the equivalent to a ton of CO2. And as recently as July those credits were fetching as much as $40. But Mark Trexler with the consulting firm, Ecosecurities, says with the global economy in a slump those days are over.
Mark Trexler: People just aren't emitting nearly as much CO2 as they thought they would.
Now heavy polluters like Europe's cement, steel and paper industries are all trying to unload their excess credits at once. That's driven the price of carbon down from its $40 peak to this week's record low of about $13 a ton.
Trexler: People have invested a lot of money in these markets over the last four or five years. And a lot of that money is vanishing right now.
And as the money vanishes, so does the confidence many people have in carbon markets as a way to reduce global emissions. President Obama wants the U.S. to take a leadership role at December's U.N. climate meeting in Copenhagen. But critics of passing a similar cap and trade program here in the U.S. say the European carbon market isn't working. Jonathan Lash with the World Resources Institute disagrees. He says the falling price of carbon isn't necessarily a bad thing.
Jonathan Lash: The fact that supply temporarily exceeds demand and prices fall doesn't seem to me an indicator that markets aren't working but that they are.
He says unlike a carbon tax, which imposes a set price on emissions, cap and trade allows prices to rise and fall with the economy.
In Los Angeles, I'm Sam Eaton for Marketplace.
Comments
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From Santa Clara, CA, 02/10/2009
Is anybody looking at merging the cap-and-trade market(s) and the carbon offset markets? I assume that the cap-and-trade model in the Kyoto Agreement limits trading to companies who received the credits but seems to me opening it wide would be a wise way to put market forces into the mix.
$12 for one ton of carbon emissions? Where can I buy these credits? Sounds like a heck of a buying opportunity, either I'd hold onto the credit (and know that a ton of carbon was not released into the environment) or I'd sell it later at a profit. (Probably the former, I don't need the money.)
Ok, maybe opening it wide would be a bad idea, given the massive speculative bubble the barrel of oil has seen over recent years.
From Hartsdale, NY, 02/06/2009
Jonathan Lash makes a valiant effort to make lemonade out a lemon, but it’s just not possible to spin falling and volatile carbon prices as anything but a disincentive to invest in energy efficiency. Energy users, particularly businesses, will be much more inclined to spend money to save energy if they believe energy prices will be steadily increasing.
A steadily increasing revenue-neutral carbon tax provides a powerful economic signal that saving energy makes good economic sense.
A cap-and-trade scheme, with the type of price volatility being experienced in Europe, discourages investment in energy efficiency. What mid-level corporate executive is going to want to explain to the boss why millions of dollars spent last year to save energy turned out to be a spectacular failure economically given today’s energy prices? Put another way, the people making decisions whether to invest in energy efficiency are going to be very, very cautious about their investments if they think they might look foolish (and out of a job) a year later.
For more information, see the Carbon Tax Center web site.
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