Thursday, July 26, 2007

Linking could cause carbon price to plummet

Linking the EU Emissions Trading Scheme (ETS) to other trading schemes under development around the world could cut the price of carbon dramatically, according to the Centre for European Economic Research (ZEW).

ZEW, based in Mannheim, Germany, ran simulations of a number of scenarios, positing that by 2020 countries such as Japan, Canada, Russia, the US and Australia will develop domestic ETSs and link them to the EU’s scheme.

Without any linking, ZEW predicts that the price for a tonne of carbon dioxide (CO2) will reach more than €26 ($36) on the EU ETS by 2020. If Canada and Japan link to the EU ETS, the report suggests that “relatively generous” allocation of allowances to industry would cause prices across the schemes to drop to €21.17/t. If Russia joined, prices would fall further to €14.27/t.

If Australia and the US, neither of which are signed up to the Kyoto Protocol, also link domestic ETSs with the EU, prices could sink to €8.24/t. If all ETSs allow the use of credits from Clean Development Mechanism projects, the international value of CO2 drops to between €4.32 and €3.87, according to ZEW.

From Carbon Finance

HT: Environmental Finance