Volatile prices predicted in the emissions market‏

12 Jul

Price volatility will become a key  characteristic of carbon, as its price becomes ever more difficult to  forecast accurately, says energy expert GlobalData.

Its report on the  topic says that the current European sovereign debt crisis has  drastically reduced carbon demand, and hence its price in the trading  market has also seen a steep decline.

The failure of the international community to agree on a common goal  in a post-2012 Kyoto framework has damaged the confidence of the private sector, and played a role in lowering the price of carbon.

Carbon is  traded at national and regional levels in various markets, and future  prices and stability have always been a concern for private players and  policy makers. Several models have been developed to forecast the market price of carbon, although outcomes differ significantly.
This is due to the nature of the carbon market, which is affected and driven by a  complex set of subjective factors.

Geo-climatic policies and energy  policies, geo-politics, global economic growth, crude oil price, coal  prices and the demand and supply scenario all help to drive and shape  the carbon market.
The European Union Allowances (EUAs) under the European Union  Emission Trading Scheme (EU ETS) is the largest cap and trade carbon  trading mechanism, followed by Certified Emission Reduction (CER) under  the Clean Development Mechanism (CDM).
Both of these programmes come  under the Kyoto Protocol. EUAs and CERs are used to offset the same  amount of CO2 emissions, but are not equal in price due to regulatory  differences for the use of CERs in the EU ETS.

The Carbon Pollution  Reduction Scheme (CPRS) in Australia and the New Zealand Emission  Trading Scheme (NZ ETS) in New Zealand are also important, and more  regional and national markets will be operational in the future. Such  developments are expected to boost the carbon market.
The short-term view of the carbon market is pessimistic, as the  prolonged European sovereign debt crisis, over-supply of carbon units,  and uncertainties under the Kyoto Protocol are expected to keep prices  low.

The EU recession means that emissions will grow less than expected, in correlation to overall economic growth.

As the EU shows signs of  recovery from the recession, carbon prices will follow the same path,  although this seems unlikely in the next few years.
The economic  conditions in the Euro zone and outcomes of the Kyoto Protocol will  determine the global price of carbon in the long-term, with government  commitments to tackling climate change dictating the scenario.

The  oversupply of allowances will keep pulling the price down over the   long-term, although global macro economic conditions will also play a  role, and prices will increase if India, China and Brazil also promise  to meet certain targets by 2020.
Apart from negotiations under Kyoto, various regional and national  market mechanisms have emerged or developed to offset emissions, despite delays and setbacks.

Australia, Japan, New Zealand, South Korea and  emerging economies such as India, Brazil and China are developing their  carbon markets.

The current state of the market and its future success  remains dependent on post-2012 international agreements and their  fulfilment.

For the general Understanding of the Kyoto Protocol and Carbon trade Read here

1 Comment

Posted by on July 12, 2012 in Business News, International News


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One response to “Volatile prices predicted in the emissions market‏

  1. Atpha Mohseen

    July 12, 2012 at 3:30 pm

    I love your website Monica. very Informative. I am a Sudanese studying Finance in the US, I never miss your daily posts. Especially the articles/general knowledge posts. Keep it up.


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