Oh Noes! EU carbon price is too low!
I’M not sure what hope there is for the human race when even the FT gets things like this wrong. Everyone and their mother is complaining that the carbon credits price under the EU scheme to deal with climate change is too low. We’ve even had our won government insisting that there must be a carbon floor price.
The EU carbon market has been miserable for most of the past few years, with prices staggering downwards from their c.€30 levels on the scheme’s launch in 2005. But it’s become very gloomy in the past couple of weeks, with mid single digits prices falling as much as 40 per cent to a record low of €2.81 last Thursday.
This isn’t miserable at all. It’s actually a good sign, these low prices.
In a cap and trade system the limit on emissions is set by how many permits are issued in the first place. So you don’t need a high price to limit emissions: you’ve already done that by the number of permits you issue.
The price of those permits is really telling you how difficult it is to hit those targets. The higher the price the more difficult it is. So, if we’ve got low permit prices this is telling us that it’s easier to hit the targets than we had at first thought.
Which is good, right? Beating climate change is going to be easier than we thought. Hurrah!
So why do people whine about the low prices?