Series of setbacks for carbon pricing

Carbon pricing, it seems, can't take a trick.

It's just weeks since the Rudd government decided to replace the carbon tax with a floating price a year early; Europe continues to dither over how to revive its ailing carbon market; and now the United Nations' own market has all but halted.

Trading in UN Certified Emissions Reduction (CER) units froze for at least two days this week, according to the perhaps aptly named ICE Futures exchange.

At roughly 80¢ per tonne, the price barely meets the cost of verifying the projects. Under the Kyoto Protocol, richer nations can use the units generated in developing countries to meet part of their emissions cuts.

Australian companies won't be too upset by units trading at a 30th of the current carbon price of $24.15 a tonne. Under the proposed changes, they can meet 6.25 per cent of emissions compliance with the Certified Emissions Reduction units in the first year, and double that amount in later years. Those changes need to survive both the federal election and then probable opposition from the Greens in the Senate.

Unlike Europe, where stagnant economies and over-allocation of permits have sent prices down to about $6 a tonne, the UN market "is a victim of its own success", Rob Fowler, a representative for Australia for the International Emissions Trading Association, said. "The change it stimulated is massive."

About 6900 projects are producing CER credits, for a total supply of 2.2 billion tonnes as of last month, or about four times Australia's annual emissions. Supply will swell to 3.8 billion tonnes by 2020, Bloomberg New Energy Finance (BNEF) says.

Demand, though, is running at just 1.7 billion tonnes. The emergence of new emissions trading markets, such as in Australia, South Korea and China, may stoke demand, as might a global pact among airlines to cut their emissions. Even so, supply will be "far more than total demand", the head of Asia research at BNEF, Milo Sjardin, said.

"You need a large combination of demand centres to make a difference to CER prices," Mr Sjardin said.

BNEF predicts prices will barely budge for the rest of the decade. That is bad news for companies such as Melbourne's RAMP Carbon, which develops projects to curb emissions and reduce poverty in Africa and Mexico.

"These projects have been seriously impacted by these low prices," Phil Cohn, a RAMP director, said. RAMP has shifted its focus to Australia's Carbon Farming Initiative.. Even here, though, the prospect of a low carbon price - estimated by the government at $6 a tonne for next July - is frustrating.

"Without the price support from a functioning market, translating [plans] into action on the ground will be a challenge," Mr Cohn said.