Carbon markets will be hit by economic slow-down

A general drop off in industry is likely to result in less demand for the European trading scheme's carbon allowances, according to market analysts.

Many commentators have been upbeat on the likely impact of the dreaded credit crunch on the environmental sector, arguing that many 'green' corporate initiatives also protect the bottom line, so are likely to become more, rather than less, popular as the business world feels the bite.

But for carbon trading, the picture could be less rosy.

As companies around the world tighten their belts, carbon emissions are likely to drop off slightly.

IDEAcarbon, a carbon market research firm, forecasts that industrial growth in the EU will be just 1% this year and will actually drop off by 0.7% next year.

The company predicts total emissions from the EU ETS will come in at around 2.18 billion tones in 2008, some 98 million tonnes above the cap.

In 2009 that shortfall is expected to shrink to 83 million tones, which means the price of carbon is likely to fall.

Alessandro Vitelli, director of IDEAcarbon said: "Taking the EU ETS in isolation, the price implications of the recession are already being seen."

"Industrial companies are busy selling off any surplus EUAs in order to raise short-term cash. EUA prices have fallen from their July 1 peak of €29.33 to a low on October 28 of €17.40.

"These surplus EUAs are being snapped up by European utilities, which face a far greater shortfall of allowances than their industrial counterparts."

On the supply side, a recession is unlikely to hamper the development of most existing CDM projects but IDEAcarbon believes that sales of CERs may be held back by developers until prices are back up at high levels.

Sam Bond



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