Europe's market in carbon emissions is hoping for outside help after a year in which prices slumped to record lows, savaging claims that trading in CO2 brakes the rise of dangerous greenhouse gases.
Launched in 2005 and accounting for 97 percent of global carbon commerce, the European Union's Emissions Trading Scheme (ETS) is the big daddy of initiatives which harness the power of the market against carbon dioxide. Under it, some 12,000 plants have been given CO2 quotas.
If firms get below their ceiling they can sell the surplus on the ETS. If they are above it, they can meet their quota by buying what they need in the marketplace.
But this carbon-cleanup incentive is falling short of what it was touted to be.
After fluctuating in the past few years between 15 and 25 euros (19.5 and 32.5 dollars) per tonne of CO2, carbon crashed in 2011. Last week, it was changing hands at 6.5 euros (8.45 dollars) a tonne, the lowest on record.
"This market was put together to give a price signal that would spur investment in decarbonising the economy," says Pierre Ducret, head of CDC Climat, a subsidiary in climate market services owned by the French state bank Caisse des Depots.
"But prices today are so low that this tool is just not effective." Rock-bottom prices for carbon mean that power companies, cement makers and other big emitters see little need to invest long-term in energy efficiency or switch out of fossil fuels.
"Fair prices on CO2 along with price stability over time are imperative for industry to continue along the path to a green growth economy," says Andres Eldrup, chief executive of DONG Energy, a green-energy firm based in Denmark.
The cause of the slump is twofold, say market watchers. One is rooted in the financial crisis in 2008, which spurred Europe's economic downturn. Less demand means less activity and less carbon emitted, as well as a softer price for coal, oil and gas.
But another lies in the way the ETS has been managed. The EU has been criticised for allocating quotas that are too generous for emitters and failing to give a steer on its plans beyond 2020, said Raphael Trotignon, a researcher at the Paris-Dauphine University.
Europe has unilaterally pledged to reduce its annual greenhouse-gas emissions by 20 percent by 2020 compared to 1990, the benchmark year used in the UN climate negotiations.
Sanjeev Kumar, based in Brussels with the green campaign group E3G, says the flood of unneeded trading allowances, combined with carbon credits earned under the UN's clean development mechanism (CDM), amount to a whopping 2.2 billion tonnes. What can be done to shore up the carbon price? CDC Climat argues for a floor of 17 euros per tonne from 2013 for quotas that will be sold by states.
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