The figure shows how the current downturn (shown as the S&P 500 index, ^GSPC) affects prices for carbon trading (iShares ETF, GRN). Lower energy (oil) futures prices (USO) also have contributed to this reduced demand for carbon credits. Similar trends can also be seen for the actual CO2 price trends on the Chicago Climate Exchange, where the price of a ton of CO2 has fallen sharply to less than 2 $/T. In comparison, the price of first Regional Greenhouse Gas Initiative (RGGI) auction of CO2 emissions last week was 3.07 $/T CO2. As the economy slows down, it seems that people would be willing to pay less for carbon emissions. How this will affect policy is a key question. The McKinsey report (mentioned in an earlier post) notes that cost savings of up to 90 $/T CO2 could be realized by energy efficiency measures in sectors like commercial and residential electronics, and lighting. However, lowering energy prices will lead to lowered incentives for energy conservation. Will either Barack Obama or John McCain have enough political will to pass any carbon regulations? For now, the US presidential candidates seem to be committed to enact GHG regulations, as seen from their last debate.
Projected (2030) greenhouse gas abatement potentials and costs
Article from the Environmental Economics blog
Another article from the Climate Progress blog
Obama's Carbon Ultimatum: from the WSJ