Emissions from the EU ETS down 3% in 2008
The latest analysis from New Carbon Finance suggests emissions from the EU ETS totalled 2.1Gt CO2 in 2008, down 3% from 2007 levels. Even taking into account reduced economic output, its analysis indicates that the largest cause of the reduction is the EU ETS itself encouraging greater use of gas in power generation.
In a report released to its clients, New Carbon Finance estimates the impact of the financial crisis and ensuing economic recession on emissions from installations covered by the EU ETS in 2008. The analysis, coming two months before the official release of the data by the European Commission, underlines the close relationship between economic activity and emissions of carbon dioxide in the European Union.
Output cuts bring emissions down
Emissions from industrial sectors included in the EU ETS decreased 5% in 2008, and were driven by the downturn in construction in countries such as Spain and the UK and the severe crisis affecting manufacturing sectors in the fourth quarter of the year.
Cement was the worst hit by the recession, with output falling 17m tonnes, or 9%, over the course of 2008. Steel production was also hit by the slowdown in both automotive sales and the downturn in construction, decreasing 30% in the last quarter to finish the year at -6%.
Power generation up, CO2 emissions down
Despite total generated electricity increasing 0.3%, CO2 emissions from the power sector fell 2% to reach 1.5Gt CO2 in 2008. This was underpinned by a fall in emissions from power stations running on coal and lignite as well as a higher recourse to gas for power generation. Other factors explaining the fall in emissions were an increase in generation from wind and hydropower, higher nuclear availability in the United Kingdom and Spain and, finally, high EUA prices throughout most of the year.
EU ETS playing its role
New Carbon Finance estimates the carbon price was responsible for 40% of the fall in emissions in 2008, with the recession accounting for a further 30%. When the supply of Certified Emission Reductions from the Clean Development Mechanism is added to the EU ETS cap, it becomes clear that there is a surplus of credits for 2008 compliance. This indicates that some CO2 reductions in 2008 were driven by a desire to bank credits into the post-2012 market, when the scheme is expected to be much tighter.
Despite the large sell-off of industrial permits over the last few months that has caused the price of allowances to fall below fundamental levels, the existence of a carbon price in 2009 indicates that banking of allowances is taking place and the design of the scheme is working as originally intended by the European Union.
About the analysis
This press release makes available the results of New Carbon Finance’s yearly update of forecast emissions in the EU ETS. Data for power includes Eurostat monthly generation data for the first 10 months of the year up to October 2008, supplemented by fuel-mix data from UCTE and New Carbon Finance’s European Carbon Model. Data for industry includes Eurostat monthly production data for the first 11 months of the year, data from the World Steel Association, country cement associations and the IEA. Output data for the remaining months of the year are provided by New Carbon Finance analysis of growth trends.
For further information please contact:
Jonathan Malsbury, Research Manager, New Carbon Finance
+44 207 092 8800
Olivier Lejeune, Analyst
Douglas Higgins, Analyst
ABOUT NEW CARBON FINANCE:
New Carbon Finance is the leading provider of high quality fundamental analysis of the European, North American, Kyoto and Australian carbon markets. Our team of analysts has been providing professional advice on carbon markets since 1998, including assistance in the design of various national and international schemes and company-level strategic advice. During this time we have built up highly detailed fundamental market models that analyse carbon market demand and supply and provide regular forecasts of carbon prices. New Carbon Finance operates as a division of New Energy Finance.
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