On the eve of the Poznan UNFCCC Conference of Parties, even pro-market and cautious expert groups are starting to sound alarm bells about the possible impacts of cheap ‘offsets’ on existing carbon markets.
The widely respected and UK government-backed London-based Carbon Trust, which provides advice on carbon reductions to industry and governmental agencies, has warned that carbon offsets could swamp the European Emissions Trading Scheme, with “strong implications” for the price of carbon (see full article below).
Whilst the Carbon Trust’s concerns appear mostly to be related to cheap CDM credits, the problems that they highlight would be even worse with the introduction of REDD credits into the ETS.
The Union of Concerned Scientists (UCS) – also strongly pro-trading and a dominant organisation in the NGO Climate Action Network – will shortly publish a report showing that forest-based carbon credits could be sold for one-third less than current ETS credits. Contradictorily, the UCS simultaneously argues that this would not depress the price of carbon, though it fails to provide any convincing arguments as to why this would be so.
Meanwhile, in the real world, the price of ETS credits has again tumbled. Fears are already growing that, even without the depressive price impact of forest credits, this will lead to a “stunting” of funding for renewable energies and other clean technologies.
Carbon offsets could swamp EU carbon price
Tue Nov 25, 2008 12:12pm EST
LONDON (Reuters) – A ballooning global supply of carbon offsets could flood the European Union’s emissions market and dent prices, according to a report to be published next month by Britain’s Carbon Trust.
EU member states, lawmakers and the EU executive Commission are in negotiations now to revamp the bloc’s emissions trading scheme (ETS) from 2013-2020, and face a mid-December deadline.
The EU ETS is the cornerstone of European climate policy. It distributes to industry a fixed quota of carbon emissions permits, which trade at a certain carbon price.
The scheme allows companies a cheap alternative way to meet their carbon caps, buying carbon offsets from developing countries, funding emissions cuts there instead.
A global offset glut may require tight import limits to maintain the edge of the EU scheme in driving domestic emissions curbs, the Carbon Trust’s Chief Economist, Michael Grubb, said on Tuesday.
“The implication is the only way you have a carbon market at all is to have a fortress Europe,” he said, speaking at a conference in London organized by The Institute of Economic Affairs and Marketforce. That assumed that the United States, Japan and Australia didn’t collectively introduce ambitious cap and trade schemes which mopped up some of the carbon offset supply.
Some EU member states have expressed concerned in the present talks that the EU ETS will impose crippling costs on business entering a recession. Increasing the flow of carbon offsets would cut those costs.
The Carbon Trust is a government-funded agency which advises business and policymakers on how to cut carbon emissions.
The report estimates that under current trends the total global supply of carbon offsets from 2013-2020 will exceed 10 billion tons of avoided carbon dioxide emissions — compared with a quota of EU carbon permits of 14.8 billion tons over the same period.
Such a volume poses a threat to EU carbon prices by potentially making it extremely cheap for industry to meet emissions targets, denting the impact of the scheme on driving low-carbon investments in Europe.
“It does have pretty strong implications for (EU carbon) price,” said Grubb, without commenting on the report’s price estimate.
(Reporting by Gerard Wynn, editing by Anthony Barker)