EU-Emissions Trading Scheme: Massive drop of carbon emission prices
Too many carbon credits allocated
The Emissions Trading Scheme (ETS) is the EU's flagship instrument to fight climate change and meet its Kyoto pledge to reduce emissions of global warming gases by 8% by 2012. A CO2 cap is set for each plant covered by the scheme. Pollution credits can be exchanged on an EU-wide carbon market.
Carbon prices dropped by more than 50% last week upon reports that the Czech Republic, Estonia, France, the Netherlands and the Walloon region emitted far less CO2 last year than initially anticipated by the market. With falling prices, incentives for companies to cut down their emissions and free up extra credits are consequently diminished.
The news took the market by surprise because of the magnitude in the discrepancy between the caps placed on countries' emissions and the amount of CO2 actually emitted. The shortfall was as much as 25% in Estonia with other countries reporting between 8 and 15% fewer emissions than anticipated. In France, this amounted to 19 million tonnes surplus allocations, authorities said.
There has been criticism that EU countries allocated too many pollution credits to industry for the period 2005-2007. This, critics say, gave companies a free ride to pollute since the vast majority of allocations were given away for free by EU governments.
2005 emissions data for the entire EU will be published on 15 May. This should allow the Commission and the member states to base their next round of allocations on reliable data based on «actual».