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Cheap Carbon: Slowdown Makes Pollution Permits Cheaper, Too

Leila Abboud reports from Paris:

Big polluters in Europe, rejoice! The global financial crisis and looming recession might actually make it cheaper to comply with Europe’s increasingly stringent caps on greenhouse gas emissions by pushing down the price of carbon-emissions permits (along with everything else traded on a market). The environmental downside? The economic slowdown and cheaper permits could mean less progress actually cutting emissions.


Will cheaper permits mean more emissions? (AP)

The price of a carbon permit under Europe’s emissions-trading scheme has dropped 15% in the last two weeks to reach an 8-month low of 20.15 euros. That’s because industrial firms like steel, cement, and paper manufacturers are selling off some of the permits they were allocated by national governments. The recession means they are cutting production—and thus, cutting their emissions just by slowing down.

With more permits sloshing around Europe’s carbon market, other polluters like big utilities who have fewer permits than they need are likely to snap up cheaper permits instead of investing now to clean up their operations. (Earlier in the year, European utilties were already burning more coal and buying permits to offset their emissions.)

This is not what environmentalists had in mind when they backed cap-and-trade as a way to ratchet down greenhouse-gas emissions. For the system to really spur change, the carbon price has to be high enough to give an incentive for polluters to install cleaner technologies or move to cleaner fuels. Capturing carbon emissions from coal plants and sticking them underground, for example, will cut emissions but will be expensive. A carbon price below 40 euros a ton tends to make “clean coal” economically unattractive.

After early missteps, Europe’s carbon market seemed to finally be working. In July, carbon prices peaked at 29.38 euros, and analysts were predicting 50 euro carbon permits before long. Then came the global economic meltdown, dampening industrial activity and the price of carbon. Analysts expected the price of carbon to fall–just not so much.

Recently, Nobel-prize winning scientist Paul Crutzen said an economic slowdown could be good for the environment by choking off some industrial activity—an idea quickly debunked by many. Europe’s falling carbon price is more evidence that an economic slowdown isn’t always the environment’s best friend.

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    • You are all gay, the environment is a fraud, a way to charge people and keep them scared, much like the cold war, millenium bug and terrorism

    • Env. Capital can do better than sitting Joseph Roam's rant site "Climate Progress" as a debunking site. If Romm is responsible for any noteworthy scientific contribution in the past, it is not in evidence there, where nearly everyone who shows the slightest disagreement from dogma is a denier / evil dooer / etc. Referencing rant site rather debunks Env. Cap.

    • Why do environmentalists care whether the emissions reductions come from factories or power plants?

      Anyway, if governments (and/or environmentalists) want to reduce emissions, the permit system provides a simple way to do it: buy permits and retire them. Indeed, a standing offer to buy permits at a floor price ought to be part of any such system. If the governments think the price has to be at least 40 €/tC[O2?], they should set the current floor price at 20 and gradually raise it to 40.

    • I see carbon permits as just one of many tools for carbon reduction, and not necessarily the best one. To have a livable planet, we'll have to consume less of everything, from fossil fuels to water to forests. Capitalism will have to evolve to embrace that reality, and not get stuck in the old mythos of endless economic expansion being both desirable and a viable option. See my related piece:

    • As far as pollution is concerned no greater culprit than the water bottle disposal issue. Check out innovative Filtered Bottled Water. You get 200 refills per filter.

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