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EU cap-and-trade market takes another plunge

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Michael Bastasch Contributor
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The European cap-and-trade market took another nose dive with carbon prices and power prices in Germany plunging to eight-year lows after the European Parliament rejected an emergency measure to buoy the EU’s carbon market.

The Parliament rejected a plan that would have taken EU carbon permits off of the market to raise the price of emitting greenhouse gases, thereby bolstering a cap-and-trade market which is now being viewed as useless in addressing climate change.

“This is a crisis in European leadership on the climate issue,” said Anthony Hobley, head of the climate change practice at the London law firm Norton Rose. “We have reached the stage where the E.U. E.T.S. has ceased to be an effective environmental tool.”

Reuters reports that carbon permits fell 43 percent to a new record low of 2.63 euros per tonne on the news of the Parliament’s vote. German power prices also fell by 3 percent to 39.60 euros per megawatt hour.

“Even though the Commission will reflect on what to do we think there’s no possibility of passing it. A second reading needs absolute majority,” said Marcus Ferdinand, a Thomson Reuters Point Carbon analyst.

The EU plan would have temporarily withdrawn permits to buoy carbon prices in the near term, but long-term reform would still need to be negotiated. Analysts say that the market has a permit surplus of about 1.7 billion.

The carbon market has suffered from an overabundance of carbon permits which have driven the price down from its peak around 30 euros in 2008. The EU carbon market suffered a major setback in January after prices plunged 40 percent after a panel rejected a previous plan to delay carbon permit sales.

The Progressive Alliance of Socialists and Democrats, a left-wing bloc in the EU parliament, issued a statement expressing “their deep concern that a conservative-led majority today failed to act responsibly, not only to make sure we have effective climate policies, but to secure the E.U.’s global leadership against climate change and create an efficient policy framework for those companies investing in energy efficiency.”

In January, bank Societe Generale cut its outlook for the EU carbon price from 2013 to 2015 by 30 percent, due to prices plunging to record lows.

“Negative news and events relating to the EU [Emissions Trading System] continue to pile up and come from all sides. So it is not at all surprising that EUA prices have fallen and have continued to be quite volatile,” they said. “The EU ETS has become a one-way market, spiraling down.”

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