Euro crisis adds to carbon pricing and trading volatility

Demand for carbon has already reduced drastically as a result of the European sovereign debt crisis according to a new report from energy analysts GlobalData.

At the same time, the continuing failure of the international community to agree on a common goal in a post-2012 Kyoto framework has damaged private sector confidence, adding further to the lowering of carbon trading prices.

The report’s conclusion is that price volatility will become a key characteristic of the carbon market in the immediate future and that forecasting prices with any degree of accuracy will become very difficult.

Taking a “pessimistic” short-term view of the carbon market, due to the Euro/Kyoto factor, GlobalData expects prices to stay low.

The EU recession, it says, means emissions will grow less than expected, with carbon prices only recovering when the EU economy shows signs of emerging from recession. That, it concludes, “seems unlikely in the next few years”.

“The over-supply of allowances will keep pulling prices down long-term,” it maintains, with the proviso that global macro economic conditions will also play a role, especially if India, China and Brazil promise to meet certain emission targets by 2020.

The report Future of Emission Trade – Price Volatility will be a Key Characteristic of the Commodity also lists several other price impact factors, such as geo-climatic and energy policies, geo-politics, global economic growth, crude oil price, coal prices and normal carbon demand/supply patterns, all adding to the volatility scenario.

edie staff