The article in the url below presents the argument that the current price of carbon on the EU cap-and-trade market is significantly lower than it should be:
“The price of European carbon allowances … has risen only modestly this year, to about €27 ($43, £21) a tonne. … However, the levels of demand and supply are severely out of balance. This may lead to a radical repricing of carbon that will fundamentally change the political, business and financial landscape forever.”
The author makes the assertion, which seems logical, that the price of carbon should rise in conjunction with the price of other energies:
“A recent report … argues that carbon's market clearing price with oil at $85 (€55) a barrel and coal at $90 (€58) a tonne is about €40 a tonne. However, with the actual oil price at about $135 (€87) and coal at $200 (€127), the market clearing price for carbon is €75 to €80 a tonne - nearly three times its current level.”
Another trigger that will lead to an increase in the price of carbon, the author argues, is the “€100-per-tonne fine that comes into force this year with phase two of the European Union's Emissions Trading Scheme.”
Maybe I am missing something, but wouldn’t this fine then automatically become the price per ton of carbon? Below €100 firms will buy allowances on the market because they are cheaper than the fine (eventually, given the lack of supply noted in the article, pushing the price up to €100). Once the market price rises above €100, however, firms will prefer to pay the fine instead. It seems to me that fixing the fine essentially imposes a government-determined price that undermines the purpose of the market and carbon trading scheme.
The overall effects of the re-balancing of supply and demand predicted by the author, and corresponding price rise, should be dramatic:
“Carbon will take its place alongside oil, coal and gas as one of the most closely followed commodities in the world. This will mark the beginning of externalities at last being priced into the cost of production.”
Firms will be forced to account fully for carbon in their strategic planning and those firms best able to innovate will benefit the most. The author argues that the effects will also extend to governments that will be forced to respect a global price for carbon and deal with multi-nationals reluctant to invest in projects involving significant exposure regarding carbon:
“Landmark decisions are already being taken in the US, where coal-fired power projects have been abandoned owing to the future cost of emissions.”
Take care
Dave
Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther
Carbon emitters' free ride is about to end
Kevin Parker
776 words
17 July 2008
Financial Times
London Ed1
11
http://www.ft.com/cms/s/0/ce67fbe0-5333-11dd-8dd2-000077b07658.html
