Carbon out of mind, favour
European Union carbon permits - representing the world's biggest carbon market - fell 8.9 per cent to €6.67 ($A8.35) a tonne in 2012, marking a fourth decline in the past five years, and have since dropped as low as €6.22.
Still, the EU contract fared better than the previous year when the value slumped 49 per cent, according to Bloomberg.
Tumbling carbon prices should be a lure for Australian companies liable to pay for carbon-dioxide emissions.
The current $23 a tonne price, implemented last July, is scheduled to convert to a variable price when an Australian emissions trading system starts in mid-2015. Local prices will link to Europe's market.
Deutsche Bank research analyst Tim Jordan noted daily European carbon prices were 40 per cent more volatile last year than 2011.
"Higher day-to-day price volatility suggests that the prolonged debate among European policymakers about the future supply of allowances has left the market without clear guidance," Mr Jordan wrote in a report.
"With the Australian carbon price set to track the European price from 2015, a volatile EU carbon price and a lack of consensus about the future supply of allowances is relevant for Australian companies making decisions about low-carbon investments."
Trade-exposed polluters received almost $1 billion in free carbon permits as part of government efforts to soften the impact of the carbon tax. Rio Tinto got more than $300 million in permits for its alumina and aluminium production, while BlueScope Steel collected $135 million, Deutsche Bank said, noting reports that European groups have complained the allocations are too generous.
Andrew Grant, chief executive of CO2 Group, an adviser and trader in carbon markets, said Australian companies appeared to be complacent about carbon in general, with many firms apparently waiting for a Coalition victory in this year's federal election.
Opposition Leader Tony Abbott made a "pledge in blood" in 2011 to repeal the carbon price and related clean energy legislation if elected.
Mr Grant said firms appeared to have ditched usual diversification of risk measures that suggest they at least hedge against the prospect of a price remaining on carbon.
"The traditional strategies don't seem to apply to carbon," Mr Grant said. "I don't know why carbon has become such a strange concept."
Snapping up cheap international carbon credits would seem to make sense, even if European prices continued their slide, he said.
The value of global carbon market transactions plunged 36 per cent last year, according to Bloomberg New Energy Finance.
The market's value declined to €61 billion, while trading volume jumped 26 per cent to 10.7 billion tonnes, equivalent to a third of the world's carbon-dioxide emissions.
The market's worth will be €80 billion euros this year, assuming the EU has some success in fixing a glut of permit supply in the bloc and boosting prices, according to Bloomberg New Energy Finance.
Frequently Asked Questions about this Article…
EU carbon permits fell about 8.9% in 2012 to roughly €6.67 a tonne (and dropped as low as €6.22), marking the fourth decline in five years. For investors, falling prices can signal weaker demand or oversupply in the carbon market, affect companies with large emissions liabilities, and influence the value of linked markets such as Australia’s future emissions trading system.
Australia plans to link its carbon price to the EU market when its emissions trading system starts in mid-2015, so a weak or volatile EU price can directly influence Australian carbon costs. That linkage matters for corporate planning and low‑carbon investment decisions, and investors should watch carbon-price trends as a risk factor for polluting or energy‑intensive companies.
The article states the Australian carbon price was $23 a tonne (implemented the previous July) and is scheduled to convert to a variable price when Australia’s emissions trading system starts in mid-2015, at which point local prices will link to the European market.
Trade-exposed polluters received nearly $1 billion in free carbon permits to soften the carbon tax impact. According to Deutsche Bank commentary cited in the article, Rio Tinto received more than $300 million in permits for alumina and aluminium production, and BlueScope Steel received about $135 million.
Deutsche Bank research analyst Tim Jordan noted daily EU carbon prices were about 40% more volatile in the referenced year than in 2011. He attributed higher day-to-day volatility to prolonged policymaker debate over future allowance supply, which left the market without clear guidance—something investors should consider when assessing carbon‑price risk.
Bloomberg New Energy Finance reported the global carbon market’s transaction value plunged 36% to €61 billion last year, while trading volume rose 26% to 10.7 billion tonnes (roughly one‑third of global CO2 emissions). The market could be worth about €80 billion this year if the EU manages to reduce a glut of permits and boost prices.
Andrew Grant, CEO of CO2 Group, said many Australian companies appear complacent about carbon and seemed to be waiting for a political change (a Coalition victory) rather than hedging. He suggested firms have abandoned traditional risk diversification strategies that would hedge against the prospect of a continuing carbon price.
The article reports Andrew Grant’s view that snapping up cheap international carbon credits would seem to make sense, even if European prices continue to slide. That is presented as an expert opinion in the article rather than definitive investment advice—investors should weigh policy and price volatility before acting.
Call 1300 880 160
Start a chat
Schedule a call
