Carbon trading looks wobbly

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WITH next year’s start for an emissions trading system affecting many food companies, agribusiness suppliers and primary producers, the past few weeks haven’t given us a clearer picture of the brave new world.

A “market” will be the main mechanism to send the signals to large greenhouse gas emitters.

The financial crisis has hurt almost every form of market, and carbon trade has been swept into the vortex.

Carbon reduction policy using a “cap and trade” approach needs a market to set a price for carbon, hopefully at a level to achieve a lowering of emissions.

Since the start of this year, fears over the economic downturn have caused European Union carbon prices to plummet.

The low prices are fuelled by a belief that lower industrial activity will see a surplus of credits compared with actual emissions, or an oversupply.

The fall in the value of carbon brings the real possibility there will be a shortfall in revenue when the Australian Government auctions emissions permits before its trading scheme begins next year.

With just over a year until Australia starts trading, the perception of some government indecisiveness over adopting the system has made traders nervous.

Debate has flared. A prolonged recession in manufacturing will keep carbon prices too low or subject to too much volatility for a desired target.

Offending emitters won’t be pressured to change; the net effect of assistance packages will not stimulate change and we won’t lop any meaningful volume off future output of bad air.

Argument is also back on as to whether a market is really a better device than the blunt impact of a direct tax on carbon.

The EU system hasn’t been able to show a major change in behaviour, while the few countries using taxes can’t demonstrate major inroads.

Other factors have caused changes in emissions level, and with the world slowing down a lot, levels of pollution will fall anyway.

So, with the real risk a poor carbon price, the resolve of many wavering countries to sign up to such systems will surely weaken further.

The chances of troubled industries being slugged by their governments with meaningful carbon tax signals is even less likely.

The chance of Australia being out there, sharing in a carbon trading future with only a few others has surely risen.