Wednesday, March 25, 2009

FT on Carbon Prices

Carbon is not immune from the vagaries of the free market capitalism.

If I was a ruthless investor I would been shorting the heck out of carbon for the last 6 months and making a tidy profit. It would be in poor taste though for an environmental economist to make lots of hard cash betting against the price of carbon.

However, the long term outlook is probably stronger than many now think. It could almost be time to put a couple of "long" bets on the price of carbon. The big unknown is regulation.

Carbon prices [FT - subscription required]

Idle factories, fewer fume-belching smokestacks. So it's no surprise prices of carbon emissions permits have plunged in line with prospects for the world economy. More surprising is their recent rally. In Europe, prices of permits that allow cement factories, power plants and other big polluters to spew greenhouse gases under the European Union's carbon cap-and- trade scheme have jumped 40 per cent from their mid-February nadir.

Over the same period, the FTSE Eurofirst 300 index of European stocks has shed about 7 per cent. Some perspective is required. In spite of their recent jump, at just under €12 per tonne, EU allowance prices remain near the all-time low of €8.20 reached last month - and well below the €30-per-tonne highs of last summer. Back then, forecasters were expecting only a mild economic slump. The outlook has darkened.

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