THE European market for carbon has declined far below the Australian government’s carbon tax cost of $23 a tonne as distressed companies in Great Britan and Greece cash in permits while investors await the results of next month’s climate summit in South Africa.
The carbon cost in Europe has fallen to around E10 (AU$13.70) a tonne throughout the past week, its cheapest level since the depths of the financial crisis in February 2009.
This is below the amount set in the new Australia carbon tax and the intended floor cost of $15 a tonne when Australia switches to the carbon trading system in 2015.
Climate Change Minister Greg Combet stated yesterday the slump in the market price of carbon had happened only throughout the past month and simply reflected the debt crisis in Europe.
He stated nobody he’d spoken to have been in a position to predict where the European carbon market price could be by July 2015, when Australia’s carbon trading system starts.
“We think we’ve got the price about right, both to drive emission reductions in our economy and about right for the time when we link up with the international carbon markets,” he stated.
Deutsche Bank carbon analyst Tim Jordan stated yesterday that the present European cost wasn’t in line with any realistic assessment from the medium term outlook for Europe.
“It is lower than it should be given the fundamentals of a scheme that has the supply of permits falling every year. Assuming the European economy doesn’t slip into recession, then demand will rise over time and the price should rise.”
Mr Jordan stated the key instrument for that worldwide market was the “certificate of emission reduction” that is produced by firms that purchase emission-saving measures in developing nations.
He stated there is uncertainty regarding their legal status, and also the problem could be addressed in the climate summit in Durban.
Under the government’s carbon trading scheme, companies purchasing permits globally for under $15 a tonne would need to create a extra payment towards the government to satisfy the floor cost, although it’s not obvious how this could work in practice.