Global Cooling On Carbon

Thursday, 18 April 2013 If you think gold’s recent swan dive was unnerving, spare a thought for those who bought carbon credits – that’s where the climate change has really happened. Gold has recouped some of its losses over the past two trading sessions, but it remains 26.9% below the all-time closing high of US$1,898.25 an ounce reached on 5 September 2011. It’s bad, it’s bad, you know it. Just ask John Paulson who reportedly lost US$1.5 billion of his personal wealth betting on the shiny metal (though it’s still a paper loss until he sells his holdings). Just ask the central banks, which according to Bloomberg, has lost US$560 billion this year. I betcha Paulson & Co. and the central banks would not be feeling all that bad — nay they would be laughing — that they didn’t buy into the emissions trading scheme business as well. For the price of carbon has not only fallen it has collapsed. It closed at US$3.61 last night, down 17% from the previous day for a total dive of…wait for it…92.9% from the US$50.66 high posted on 11 July 2008. Yeouch! As with many of the troubles that still plague the global economy, this too is made in Europe. Carbon prices fell after the European Parliament rejected the European Commission’s plan to backload – that is, take 900 million tonnes of carbon credits off market and return them when the region’s economy is stronger (in three years? five years? 10 years?). The rejection was for all the good of Europe. It’ll reduce costs for European businesses, especially the energy intensive ones, and it’ll lower European consumers’ living expenses, mainly energy bills. They need that with many national governments on an austerity crusade – reducing fiscal spending here and raising taxes there. Whatever works to keep the Eurozone economy working again. And once more, like any made in Europe predicament, it spells contagion…into Australia in particular. You can almost taste Ernest Miller Hemingway’s immortal words, “don’t ask for whom the bells toll, it tolls for thee”. Did I say you, I mean Julia and Wayne. For just as we Australians all, seemed to have warmed to Julia’s flip on the carbon tax, the international price has collapsed. Australian energy guzzlers are currently paying a fixed price of A$23 per tonne and by 2014/15 this will increase to A$25.40 — all the while when the international price is around US$3.60 (A$3.74). It comes as no surprise therefore that you hear Australian businesses – led by the Business Council of Australia and the Australian Industry Group – clamouring, “I’ll have what she’s having”. That’s tough for Wayne Swan who’ll be presenting the Budget to us Australians all in less than a month’s time. The last Budget predicts a carbon price of A$29 a tonne by 2015/16. This would put an extra A$6.7 billion in the government’s coffers. Financial markets see the carbon price at A$3.46 a tonne by July 2015. What happens to Wayne’s forecast revenue then? But this is still two years away. Unless a miracle happens, Labor would not be in government by then and it’ll be up to Tony to blame why the Budget remains in deficit on Labor.