Abstract
Overview
Introduction
Datamonitor predicts that the EU emissions trading will fail to incentivise
carbon abatement going forward, leaving a void of uncertainty in Europe's
energy sector. An over allocation of emissions credits in the first phase is
subduing the price of carbon. A continued lack of policy cohesion will
undermine the scheme's second phase leading the EU to collectively miss its
Kyoto targets.
Scope
- an overview of the key factors which are undermining the traded price of
European carbon emissions credits.
- an understanding of the impact that low carbon prices have on the
abatement strategies employed by power generators.
- an assessment of the potential policy floors and market distortions that
lie ahead in the second phase of European emissions trading.
Report Highlights
National Allocation Plans are overly generous in first phase of EU emissions
trading. In 2005 the ETS scheme had a 2.4% excess of allowances. The ability
of participants to bank these additional credits will suppress the price of
carbon until 2007 at least.
Despite the higher concentration of carbon in coal, the costs associated with
emitting carbon are not sufficiently high to offset the impact of high
wholesale gas prices. It was still significantly more profitable for
generators to burn coal as opposed to gas when carbon reached its record high
above €30 per metric tonne.
The inability of the European Commission to demand appropriate carbon quotas
cuts from key emitters will see the EU miss its collective ETS and Kyoto
targets, undermining the reputation and validity of the entire scheme.
Reasons to Purchase
- understand the implications that a low carbon allowance price has on the
overall effectiveness of the EU emissions trading scheme.
- gain insight into the importance of fuel switching and the factors that
incentivise generators to burn either coal or gas for power production.
- assess the structural barriers and market impediments that European
emissions trading faces beyond 2007.
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