Major Investors Call For Urgent Changes In Global Carbon Market
By Selina Williams, Dow Jones in Easy Bourse, Tuesday May 19th, 2009 / 1h16
LONDON -(Dow Jones)- Global carbon markets need urgent changes if they are to encourage investment and support the development of a global low carbon economy, the Institutional Investors Group on Climate Change said in a report released Tuesday.
The IIGCC, a European group of institutional investors which has around EUR4 trillion of assets under management, said companies and investors need strong price signals from emissions trading schemes to have the confidence to make long-term investments in low carbon technology. The stronger prices would come from ambitious caps on the amount of greenhouse gases that can be emitted.
"The credibility of emissions trading schemes would be greatly improved with a robust price signal as well as clear and frequent communication from the regulator on trading data and improved transparency over direct government participation in schemes," IIGCC Chairman Peter Dunscombe said.
The report also said that in the longer term, carbon markets will be more effective if countries such as China and India also take on binding emission reduction commitments and fully participate in trading schemes.
As carbon trading schemes evolve on a regional or national basis, it is important that each scheme's allowances and credits are compatible across multiple markets, said David Russell, co-head of Responsible Investment at the Universities Superannuation Scheme.
"This measure would pave the way for a single global carbon market, which in turn would allow emissions reductions to be achieved at the lowest possible cost, increase liquidity and create a truly global carbon price," Russell said.
Investors took a big hit earlier this year when carbon prices in the European Union's Emissions Trading Scheme plunged to a low of around EUR8, an almost 75% drop in prices from a peak last summer.
At the time, the sharp drop in price and volatility of the carbon price raised fears about the viability of some renewable energy and low carbon schemes and some investors called for a floor on carbon prices.
Although the IIGCC supports the U.N.'s Clean Development Mechanism, it said measures such as setting sector or program-based targets rather than a project-by-project approach would improve the CDM's scale and effectiveness. The CDM's institutional framework also needs improvement, the IIGCC said.
Under the U.N.-led Clean Development Mechanism, which was set up as part of the Kyoto Protocol in 1997 and came into force in 2005, clean energy projects in the developing world are rewarded with tradable carbon credits.
European companies can buy these credits and use them to offset their emissions and meet some of their obligations under the European Union Emissions Trading Scheme.
The IIGCC, which has 52 members including large pension funds and other institutional investors across Europe, aims to become an influential player on the investment implications of climate change.
Investors are keen to participate in the expanding carbon market that some analysts estimate could reach $2 trillion a year by 2020 from around $117 billion last year.
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