London - Climate negotiators meeting in South Africa this
week face fresh worries over saving the planet from global warming, now that a
tonne of carbon trades at the price of a pizza.
A European steel plant producing a tonne of steel pays as
little as $12 for the resulting carbon emissions, spelling trouble for Europe's
carbon emissions trading scheme, the world's largest.
At those prices, there is little incentive for industry to
lower its carbon output, meaning one of Europe's major tools in fighting
climate change is broken.
Analysts say carbon prices would need to return to 2008
levels to start making a difference.
"Given current commodities prices, we would need €20 a
tonne to achieve a significant emissions reduction," said Per Lekander, an
analyst at UBS.
"I look at the price in the morning and don't want to
get out of bed," said a London-based emissions trader.
London is the EU carbon market's hub with traders, brokers,
power generators and project originators responsible for the bulk of trade.
But with carbon prices down more than 50% since June, some
have decided to cut their losses and have left the market.
The EU Commission declined to comment on current carbon prices
when asked by Reuters but speaking in Brussels last Thursday, Denmark's
Climate, Energy and Building Minister Martin Lidegaard acknowledged concern.
"Carbon prices are low because there is a crisis. This
is a serious problem that threatens stability for investors," Lidegaard
said, adding the commission would be looking at ways to support prices.
How Europe tackles that problem will be a hot theme in
Durban, where negotiators from more than 190 nations are gathering for a
two-week summit to map out a successor to the Kyoto Protocol which expires in
2012.
Analysts say it is important to agree a future pact to
safeguard a 2010 goal of limiting global warming to below 2 degrees Celsius
above preindustrial times, a level viewed as a threshold for dangerous change.
"We want to see the CO2 price strengthened to give a
clearer signal for EU businesses to move to a low carbon economy," UK
Energy and Climate Change Minister Chris Huhne told Reuters.
"That will come down to the EU economy recovering and making
sure we bring more ambition in terms of carbon reductions in the EU," he
said.
Britain and several other EU member states want to toughen
the bloc's climate goal, by increasing its 2020 target to cut emissions to 30%
from 20% against 1990 levels.
Yet the 27-nation bloc has said it won't move to a stricter
target unless other large emitters, like China and the United States, follow
suit, which looks unlikely at the climate talks.
Either way, moving the goalposts on a scheme that caps the
carbon dioxide emissions on 11 000 power generators and factories in 30
European countries will not be easy.
The EU carbon market, valued at $120bn last year, has been
caught out badly by an excess in carbon permits and credits which analysts
expect to outpace demand until 2020.
And unless the EU toughens its climate goal or takes
intervention measures, carbon prices are likely to stay low until the economy
recovers.
The knock-on effects include hampered efforts to tackle
climate change and hobbled investment in low carbon technology, a sector many
European governments are looking to for help in creating jobs.
Shares in clean energy project developers, including
UK-based Camco International and Trading Emissions, are among those feeling the
heat.
"Some of the weaker, independent project developers
could inevitably be affected at these price levels and it is likely that some
of these may not survive," said Paul Soffe, an associate director at
Ecosecurities, a clean energy project developer owned by JP Morgan Chase.
Fears of economic recession have added to analysts'
pessimism in recent weeks, with Barclays Capital and Societe Generale among
those downgrading their forecasts for carbon.
Gone are the hopes, held just two years ago, of a trillion
dollar carbon market by 2020.
And despite schemes in Australia, New Zealand and
California, a globally-linked carbon market remains elusive, especially after
the United States last year failed to pass legislation introducing a federal
emissions trading scheme.
Some are looking beyond schemes or market intervention for
help as Nigel Brunel, a carbon trader from New Zealand, wrote recently in the
Reuters Global Carbon Forum: "Dear Lord - please make the carbon market
rally."