June 12, 2008

Companies Turn To Coal In Face Of Rising Oil Prices

In a classic Catch-22 scenario, rising oil prices are leading power companies to switch to cheaper, dirtier coal power, the EU Observer reports, via BusinessWeek.

The benchmark EU carbon contract for December delivery of EU allowances climbed to the highest carbon allowance in 25 months — $42.73 — a 40 percent increase in the past four months, according to carbon offset management company Carbon Positive.

Traders attribute the rise to the rising price of oil, which saw a $16-hike in a period of two days, and the largest one-day price increase on record ($10.75), this month.

As oil prices escalate, power companies switch to coal, which is cheaper but dirtier, requiring additional carbon allowances and pushing up their price. Carbon offset credits have also risen steadily in the last month, climbing above $31 for the first time and closing at $31.50 last week, according to BusinessWeek.

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