Wednesday, July 11, 2007

Falling Prices For Emissions Credits

One of the interesting phenomena of this early stage of the development of carbon trading markets is the long-term price trend. On the European market, there are forecasts that carbon offsets for the 2007-2012 period will fall to 8 Euros per ton from about 21 Euros per ton today. See article here. On the Chicago Climate Exchange, prices have fallen from over $4.50 last year to under $3.50 this year. While falling prices may be bad for the carbon trading markets, on a global level they are encouraging. These prices apparently reflect the ease with which industries are finding low cost methods of reducing and/or offsetting CO2 emissions. This price signal, together with the large flow of investment dollars into "green" climate change projects (see BBC article), will likely encourage further and more vigorous government action to reduce GHG emissions. As mandatory reductions take hold in California and elsewhere in the U.S., it will be interesting to watch the price signal, whether rising or falling, and to see whether and how government reacts to it.