Carbon Markets Stay Steady As Commodity Prices Tumble

Oil Tanker

By James Noble

September 3, 2015

Despite the almost universal drop in the value of commodities over the last year, one commodity has resisted the trend: carbon emission allowances.

Pollution permits in the European market are expected to climb by 11 per cent by the end of December, Bloomberg Business reports. In contrast, Citigroup is predicting that crude, which has already declined by 30 per cent since its June peak, may lose another 30 per cent by year’s end. Gold is also expected to decline by 29 per cent by the end of next year.

The increasing prices are a response by the European Commission, the market’s regulator, to an oversupply that produced record low prices in 2013.

“This is an artificial market created by politicians, not a normal commodity market like oil,” Bernadett Papp, an analyst with Vertis in Budapest, told Bloomberg Business.

The $53-billion European carbon market covers almost 12,000 factories and power stations and has been central to European policymakers’ efforts to combat climate change.

The rise of carbon emission allowances has not been exclusive to Europe, however, as carbon markets globally have also gained.  New Zealand’s carbon market has advanced 5.5 per cent so far this year and the Regional Greenhouse Gas Initiative, a nine-state trading system in the northeastern United States, has risen 14 per cent.

The California-Quebec joint cap-and-trade system developed as part of the Western Climate Initiative covers more than 80 large companies and over 400 million metric tonnes of carbon emissions. At a recent joint auction earlier this month, all emission allowances were sold at $12.52 (C$16.39), a respectable 42 cents above the auction's price floor. The North American scheme will grow further when Ontario formally joins, at which time it is estimated that over 75 per cent of Canadians will live in a province that uses carbon pricing—whether in the form of cap-and-trade or a carbon tax.

With China set to start its carbon trading program in 2016 and President Obama’s recent Clean Power Plangiving U.S. states the option to set up their own trading markets, carbon pricing and emissions markets may once again catch global attention.