Europe seeks global carbon trading market

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Analysts suggest companies are flooding the market by cashing in their emissions allowances to raise money, rather than for any environmental benefit.

The EU Emissions Trading Scheme (EU ETS) was set up as a market mechanism to help companies reduce carbon emissions. Polluters are granted a certain number of emissions allowances that can be traded. So a heavy polluter can buy carbon allowances from a company that has succeeded in reducing its emissions.

Almost €3bn (£2.8bn) worth of allowances have been sold since the beginning of December, driving the carbon price down by almost 30pc.

Consultancy IDEAcarbon said the sheer volume of sales suggests companies are not just selling their surplus, but also allowances that would normally be used to comply with the scheme.

“Companies may well be deciding to worry about EU ETS compliance later – their very survival is more important in the short run,” it said.

The price of carbon has plunged 60pc since July last year also driven by a decline in industrial activity, which results in lower emissions and therefore lower demand for carbon allowances.

Alessandro Vitelli of IDEACarbon said: “[The scheme] is not serving its purpose. It’s not the way that the architects envisioned emissions would be reduced. The fact that emissions are down means [companies] could sell these allowances and invest the revenues in low carbon technology, but because of the recession they are doing it just to survive.

“You may argue that governments should be able to interfere in the system by removing tonnes of carbon, but then you would remove confidence in the market.”

The European Commission yesterday laid out proposals for a global pact on climate change to be discussed at the UN climate conference in Copenhagen in December. It said the EU should seek to build a carbon market across the developed markets of the OECD by 2015, by linking the EU ETS with other comparable systems.