Column : Will carbon prices recover?

Prices of European carbon permits are 7 euro/tonne, down by 8 euros from November 2008. Certified emission reductions (CERs), or carbon permits from developing countries, traditionally follow European Union Allowance (EUA) prices and trade at a discount of 0.5-1 euro, although this spread has increased significantly over the last year. As of November 26, 2012, these developing country CERs were at 0.88 euro, their lowest ever. Volumes are minimal and purchasing in the more meaningful 5-8 euro range continues, but that is for ‘special projects’ with unique environmental and social benefits, or from programs of activities—a parallel system introduced into the clean development mechanism to make systematic reductions through various programmes.

The first major price decline was in 2009, when recalibrated growth plans forced firms in Europe to offload permits they had acquired for future usage. But the effects of the 2008 crisis were worse than anticipated and firms further offloaded credits in 2010-11, forcing prices to fall further.

Prices are a reflection of supply and demand. The emissions cap for the European Union Emissions Trading Scheme (ETS)—2008-12 period—was considered ambitious. But the 2008 crisis radically altered the picture and the ETS has since experienced a surplus of allowances and international credits compared to emissions. The number of allowances put into circulation by European governments has been higher than industry demand. Supply and use of international credits have increased. According to the

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