The credit crisis also revealed a basic problem with the clean-energy business. Fossil fuels are, in terms of the energy they store, remarkably inexpensive to get out of the ground and sell. That makes dirty industrial processes irresistibly cheap—so long as they are not required to cover the costs of the pollution they cause. Companies cannot be expected to abandon them unless they get a clear signal from consumers or governments that it is in their financial interest to do so. And they are not getting such a signal.

More Here

According to Richard Newell, head of America’s Energy Information Administration, a carbon price is around twice as efficient as a renewable portfolio standard (which requires power companies to generate a certain proportion of the power they sell from renewable sources) and about two-and-a-half times as efficient as a renewable-energy subsidy.

According to Dimitri Zenghelis, one of the authors of the Stern Review and a senior adviser to Cisco and the Grantham Research Institute, a $40 carbon price now, doubling by 2050, combined with non-price policies such as appliance standards and R&D support, is needed to hit the 450ppm target.

Thanks to a combination of the recession and a lack of political will, most estimates of the future level of Europe’s carbon price have been revised sharply downwards this year. And if America gets a carbon price, it is unlikely to be high enough to make much difference. According to America’s Environmental Protection Agency, the legislation Congress is now considering would set it at $12 a tonne in 2012, rising to $20 in 2020.

Globally, New Energy Finance reckons that only $24 billion of green-stimulus money will be disbursed this year, with another $58 billion to follow in 2010 and a further $56 billion in 2011. So it looks as though the money will come too late to temper the recession of 2008-09, and may instead fuel another inflationary boom in a couple of years’ time.

More Here

CCX – Chicago Climate Exchange – Market Price $0.25
RGGI – Regional Greenhouse Gas Initiative – Market Price $2.95
CCAR – California Climate Action Registry – Market Price $4.25
VCS – Voluntary Carbon System – Market Price $5.00
CCX 2013 – US Federal Program Credit – Market Price $10.50
CER – Certified Emissions Reduction – Market Price $18.38 (E13.00)
EUA – European Union Allowance – Market Price $20.85 (E14.75)

The mandated programs in Europe trade at the highest prices as you would expect. The CCX 2013 credits are priced roughly at 50% of the EUA credits, implying a much weaker program adopted in the US. The market is also telling us that early action is likely with each CCAR being worth roughly half the federal program and each RGGI being worth a third.

This is where it gets complicated. The value of a ton of carbon reduced is dependent on the program mandate, the project type, the vintage, and the geography. All tons of carbon reduced are not equal. In essence, the various registries and programs have already begun to grade carbon. It seems like only a matter of time before rating agencies begin to rate the credits. Next step ratings, then roll them up in tranches, securitize them into Carbon Backed Securities (CBS), and trade them….