EU carbon trading turmoil boosts plant profits

The European Union (EU) carbon trading scheme has been hit by economic jitters and concern over an efficiency drive, costing EU allowances (EUAs) a quarter of their value over three weeks while raising the profitability of coal generation.

As the carbon market approaches a seasonal slide over the summer months, an enduring surplus in EUA permits has been worsened by a plan to sell an extra 300 million permits by 2012 to raise funds for green projects, especially those in carbon capture and storage (CCS).

“Certainly this should push more coal plants into merit,” Barclays Capital analyst Trevor Sikorski told Reuters Africa. Merit is a measure of the relative profitability of different forms of generation such as gas or coal.

The drop in carbon prices has also slashed the total value of EUAs to EUR4bn ($5.7bn) on 23 June, down from EUR5.4bn on 31 May.

The slide has been accelerated by concern over Greek finances and the implications of an efficiency directive. The EU has failed to confirm that surplus EUAs would be removed if the price of the permits were undermined by efficiency gains.

An analysis of a planned energy efficiency drive concluded that carbon prices could plunge to less than EUR14 per tonne in 2020, down from EUR25, if the efficiency drive achieved its objectives.

In separate news, the European parliament has delayed until 4 July a vote on raising Europe’s goals in carbon emission reduction from 20 per cent by 2020 up to 30 per cent.

According to the BBC, the failure of Europe’s environment ministers to reach agreement on the higher target in a meeting in Luxemburg on 22 June was blamed by the UK’s energy minister Chris Huhne on Poland.

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