Last year, Swiss investment house UBS released a damning report about the $287 Billion wasted propping up the ETS, the European Carbon Cred Scheme. They pointed out at that time that if the money had been used to renovate Europe’s power generation fleet, CO2 emissions would have been cut by 42%. Now they have more bad news for already overburdened taxpayers across the E.U.
Carbon-dioxide permits in the European Union emissions trading system, the world’s largest, are “worthless” without a change in the rules to tighten supply and curb a record glut, according to UBS AG.
EU allowances for delivery in December sank to a record 4.79 euros ($6.37) a metric ton on the ICE Futures Europe exchange today. The contract was at 4.86 euros as of 9:51 a.m. in London, extending its losses to 27 percent this year after low bids from utilities, factories and banks forced Germany on Jan. 18 to cancel a sale of permits for the first time.
“With current rules ETS won’t work until 2045, thus carbon is worthless,” Per Lekander, a Paris-based analyst at UBS, said in a research note today.
The price of permits in the EU emissions trading system, or the ETS, plunged about 80 percent since the beginning of 2008 as the economic crisis eroded industrial output. The limits on discharges were set before the euro area entered two recessions in four years. The program, which imposes emission caps on about 12,000 facilities owned by manufacturers and power plants, doesn’t allow any price floors or ceilings.
The European Commission, the bloc’s regulatory arm, will not get support from governments for its plan to temporarily cut oversupply by delaying auctions of some permits, according to UBS. The commission’s strategy, known as backloading, would postpone sales of 900 million allowances from 2013-2015 to 2019-2020 to help prices rebound.
The decline in carbon prices means that polluters “got a grace period, no more,” Lekander said. “European climate policies remain intact and the CO2-constraints will eventually be re-established. This could for instance happen through a price floor in ETS or via a carbon tax.”