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Europeans Face Carbon Permit Shortfall

coal power plantDow Chemical, Heidelberg Cement and other manufacturers face carbon permit shortages as the European Commission tries again to curb a record glut.

The glut has accumulated since 2008, driving carbon permits to a record low, threatening the viability of the world’s largest emissions market. Higher permit prices would discourage fossil fuel use and encourage clean energy development, but also raise costs for manufacturers.

Bloomberg reports companies will be short of as many as 100 million permits a year through 2016, quoting Goldman Sachs Group Inc. The gap was worth about 647 million euros ($884 million) at recent prices. This compares with a surplus of 2.1 billion euros in 2012, EU data show.

This shift has threatened to push up costs for factories, which have sold surplus permits for cash. But decisions to sell permits are now more complicated as Europe emerges from recession.

Under the EU’s nine-year-old emissions market, permits allowing the holder to emit one ton of carbon dioxide into the atmosphere are either allocated for free or auctioned to about 12,000 factories and utilities that must have enough to account for their discharges or pay fines amounting to 100 euros a ton.

About half of the permits are given away to factories for free, with the remainder sold at auctions. 

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