Friday, 30 January 2009

Carbon price crash

Carbon trading is seen as a mechanism to fund development of sustainable energy solutions, particularly in developing countries, but the effects of recession around the world are hitting the price, potentially cutting funds for some projects. The BBC reports:

It [the EU carbon trading scheme] seemed like a market solution to global warming in Europe, but initially many of these permits were given away for nothing.

Now, as recession bites, industries like steel, cement and glass may be polluting less, but only because they're producing less. So companies are desperately selling off the carbon credits they no longer need to bolster their faltering balance sheets. That has led to a big drop in the market value of carbon permits, and as the right to pollute becomes cheaper, there is less incentive for companies to stop polluting. (source)

Of course, this is not unexpected, and one of the few good things about the recession is there will be reduced pollution. However, if the result is reduced investment in renewable energy, then when (if?) things pick up economically we'll discover that global oil and gas production have declined in the intervening years and we won't have built anything to replace them. This is not just because investment in renewable energy may fall, but also because many new oil production projects are now on hold because the price of oil has fallen from $147 in July to about $40 now. But the potential supply from many existing oil fields is still falling in the meantime, and when demand picks up there'll be no new supply, or renewable alternatives, and the price will go through the roof (again).

If you're not familiar with Peak Oil, read about on PowerSwitch UK, TOD or Wikipedia.
Mike

1 comment:

Fr. Peter Doodes said...

My concern is that Carbon Trading is Enron Economics.

The public in general really do believe the idea that you can take a jet to NY and that by magic the pollution will be removed from the atmosphere by Carbon Credits.

As far as oil is concerned, it's a strange world. Royal Duch Shell made a loss of 2.81 billion dollars for the last quarter of 2008 and they were followed by others.

Oil is currently selling at, as you said, around $40 a barrel(roughly 26p a litre) on the open market. OPEC members cannot survive on less than $72 a barrel and the Venezuelan State oil company has reported that it can no longer pay its way.

We are still in a peak oil situation it is simply not causing a problem... at the moment. The world is awash with the stuff and full tankers are at sea with nowhere to go because demand has fallen off.

As you point out though, when demand does pick up..........