UBS Drops Another Bombshell on the E.U. Carbon Trading Market

Posted: January 21, 2013 by tallbloke in Analysis, Carbon cycle, Forecasting, government, Politics, Robber Barons

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.

  1. Roger Andrews says:

    And the ETS administers – if that’s the right word – only about 7% of global carbon emissions. So you can imagine what a truly global carbon trading scheme would be like.

    In fact you don’t have to imagine, there already is one. It’s called Kyoto. And if you think the ETS’s surplus of 1.5 billion credits is bad, Kyoto has a lot more. Russia alone has over 5 billion surplus credits, Ukraine probably around 3 billion, and China, India etc. – well, no one seems to know how many they have, but they plan to sell 1.6 billion just over the next year or two.

    So no worries, you Aussies. You won’t have to cut your emissions after all. In a year or two you’ll be able to buy as many carbon credits as you need for just a few cents each.

  2. michael hart says:

    I think we get the message now from UBS: They clearly don’t have a vested interest in this zombie-market.

    But who is it that does? And which particular members of the European Commission or the European Parliament are, ahem, promulgating said interests for pecuniary gain?

    The Bishop sadly reported yesterday that The Economist still seemed to be encouraging the “Globe group”; pushers who claim that we should make local laws even if they are totally futile globally (as well as cretinous).

    Time for a futile gesture?

  3. michael hart says:

    I should add that UBS could, of course, have, or be representing, interests in other sectors of the energy markets. Interests that may benefit, or suffer less, as a result of the failure of the EU’s rather lame and pathetic attempts at eco-imperialism.

    I should also add that I am merely expressing my own opinions derived from a modest scientific education which leads me to conclude that the tenets of catastrophic anthropogenic global warming due to carbon dioxide are half-baked. Or slightly less.

  4. tallbloke says:

    Roger Harrabin blames the Americans:

    roger harrabin ‏@RHarrabin
    Thud… carbon price hits the floor. People forget it was the USA that insisted on carbon trading at Kyoto.

  5. michael hart says:

    Well, at least Roger Harrabin is giving us names. (It’s not like he’s a whiz with the numbers.)

    “EU Climate Commissioner Connie Hedegaard”, is clearly someone who should later face questioning on this matter. She clearly hasn’t been faced with the right questioners yet.

    And, as an American, I’m honored to take all the blame Roger Harrabin thinks he’s got.
    I was born there. 🙂 🙂

  6. Roger Andrews says:

    The US has no emissions caps, no carbon trading, no carbon taxes and no carbon legislation at the national level, yet according to IEA data it has reduced its emissions by more tonnes of CO2 than any other country since the Kyoto Protocol was adopted in 1997. Maybe a lesson there somewhere.

    For the record, the US did introduce the concept of carbon trading at Kyoto but had little or nothing to do with implementing it. The US effectively backed out of Kyoto in July 1997, five months before the Protocol was adopted, when the Senate unanimously passed the Byrd-Hagel resolution. After Byrd-Hagel the rules were changed so that Kyoto could proceed without US involvement.

  7. tallbloke says:

    Jonathon Porrit also told me that it was the Americans who forced the Europeans to agree to an ETS as a condition of even being involved in the Kyoto process that they didn’t ratify in the end anyway. Maybe the whole ‘carbon market’ idea was too far down the road to repeal by then, and the sharks already smelled the chum in the water.

  8. Roger Andrews says:

    You can blame the Yanks for a lot but not for the European Trading System. The Kyoto Protocol didn’t call for it – in fact it doesn’t even mention carbon trading – and the ETS didn’t start until 2005, by which time the US was long gone. The ETS was a purely European conception.

  9. tallbloke says:

    Probably an American conception, but the European Commissars were willing accomplices to the idea.

  10. Roger Andrews says:

    Yeah, “conception” was the wrong word. I should have said “decision”.

    The conception was indeed American. It first saw the light of day in the 1990 US Clean Air Act Amendments, which set up a cap-and-trade system to help reduce US SO2 emissions. Kyoto pretty much copied it, as far as I can see.

    Did the US cap-and-trade system work? Well, SO2 targets were met, but probably not because of cap-and-trade. By the time the ETS was adopted in 2005 both the US and Europe had been working to limit SO2 emissions for 25 years or more, the US with a cap-and-trade system and Europe without. Who did better? Europe, hands down. Between 1980 and 2001 the EU15 reduced its SO2 emissions by 78% compared to 39% in the US. The European Commissars might have stopped to consider this before adopting the ETS, but I guess the snowball was rolling too fast.

  11. Brian H says:

    If CO2 emissions were allowed to reach their true market value, they would be subsidized. The whole ETS “conception” is bass-ackwards.