60% Decrease in Carbon Credits

WSJ Environmental Blog reports on a 60% decrease in carbon credits.

Cheap Carbon: Permit Prices Tank, Threatening Clean-Energy Projects

Posted by Keith Johnson

Leila Abboud reports:

In the wake of the financial meltdown, markets are under fire everywhere, kind words from President Obama notwithstanding. The meltdown and falling prices is hitting one arena especially hard: the carbon market.

After a record year in 2008, prices for carbon-emission permits in Europe have collapsed. They’re now at about 11.6 euros, down 60% from their summertime highs. Carbon prices are falling, in large part, because of the economic slowdown and a fall in industrial output; shuttered factories emit less pollution, meaning companies have an easier time meeting emissions targets and need to buy fewer permits on the open market.

Falling carbon prices isn’t necessarily a bad thing. For big utilities, like Germany’s RWE, it’s good news because it reduces their cost of complying with Europe’s increasingly tough carbon caps.

But a lower carbon price does one negative side effect: It stifles investors’ interest in clean-energy projects in the developing world.

That’s because prices have also plummeted for carbon-emission reduction credits generated by putting up wind farms in Mongolia or by cleaning up steel factories in India. Those carbon permits, known as CERs, are now flirting with record-low prices of about 10 euros. Project developers who put clean energy projects in the developing world sell the emissions credits to companies, especially those in Europe, that need to buy those credits to comply with environmental regulations. Since CERs are usually cheaper than conventional credits, companies can use them to meet part of their emissions-reductions targets.