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Carbon prices plunged yesterday in the aftermath of the Copenhagen conference on climate change, dealing a blow to the credibility of the European Union's carbon-trading scheme.
Prices for carbon permits for December 2010 delivery, the benchmark contract for pricing European permits, dropped nearly 10 per cent in early trading, before recovering to end the day 8.3 per cent lower at €12.41.
Lower prices give companies less incentive to invest in cutting their greenhouse gas output. Analysts estimate that prices of more than €40 a tonne are required to stimulate investment in new low-carbon technologies.
Emmanuel Fages of Société Générale/orbeo said that carbon permit prices could drop as low as €10 in the first quarter of 2010 as market participants, which have been oversupplied with quotas, would know for certain how much carbon had been emitted in 2009.
The effects were also felt on the smaller market for United Nations-backed carbon credits, issued under the Kyoto protocol to projects that reduce emissions in developing countries.