Falling price of carbon may threaten investment in the energy sector
Mon 09 February 2009
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Experts are predicting that the price of carbon could fall as low as €9 as global recession, reduced manufacturing output, and the consequential reduction in consumption of fossil fuels, reduces need for carbon emissions permits. The price of carbon has so far fallen by nearly 70 per cent since reaching a high of €32.90 in April 2006 to a new low of €10.81 at the end of January 2009.
Many projects to reduce carbon in the UK and the developing world - which are partly funded by being awarded carbon credits which can be sold on carbon markets - are increasingly marginal. Paul Golby, the chief executive of E.ON told the Financial Times that the finances of the London Array, a planned 1,000MW wind farm in the Thames estuary, are "on a knife edge" , partly because of the falling price of CO2 emissions permits. Meanwhile, EDF chief executive Vincent de Rivaz warned in an interview with the Guardian that companies need a certainty in carbon price if they are going to commit to projects and warned that speculators risked turning carbon into a new type of sub-prime investment."
Jeff Chapman, the chief executive of the Carbon Capture and Storage Association, said: "The problem is that investors can't bank on a future value of carbon. It is impossible to take a project proposal to a bank based on a future price because we have seen the price collapse once before, and it is now doing it again." Sanjeev Kumar, emissions trading scheme co-ordinator at the WWF, warned: "The way the national allocations plans are set up is a disaster. Handing free permits to power companies is like handing them a cash bonus."
Meantime, the EU has voted that more permits will be auctioned after 2013 rather than being given away for free, which may lead the carbon price to be higher and more stable after that date.
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