There was a chap in the audience of this year’s London City debate — claiming to be a vulcanologist — who questioned the whole point of carbon trading schemes given that any savings would be blown out of the window by just one or two major volcanic eruptions in the world.
Which got us at FT Alphaville thinking about the significance of Iceland’s latest volcanic eruption on European carbon markets.
But before we start panicking it’s worth pointing out, as the Australian Broadcasting Corporation stressed on Friday, the world’s last major volcanic eruption — Mount Pinatubo in the Philippines in 1991 — actually contributed to global cooling instead of warming, because the sulphur it omitted into the sky acted as a barrier against the sun.
As the ABC noted:
Scientists estimate that the 15 or so million tonnes of sulphur dioxide spat out by Pinatubo temporarily cooled the globe by as much as 0.5 degrees Celsius.
Sadly for climate change worriers, the explosion of Iceland’s Eyjafjallajökull volcano isn’t anywhere near large enough to have any equally cool effect, says ABC.
If anything, they say, it might indeed be having the opposite effect.
Indeed, the ABC quotes the Australian climate change sceptic, miner and geologist Ian Pilmer as follows:
Last year Ian Plimer asserted that the carbon dioxide coming from all the world’s volcanoes was one of the major contributing factors to changes in atmospheric CO2. “Over the past 250 years, humans have added just one part of CO2 in 10,000 to the atmosphere. One volcanic cough can do this in a day,” he said.
But these figures are actually very hard to reconcile.
According to the broadcaster, Pinatubo pumped some 42m tonnes of CO2 into the atmosphere in 1991, while the US Energy Information Administration, says human activity contributed 29,195m tonnes of CO2 to the air in 2006. As the network stated, that’s nearly 700 times as much as Pinatubo’s ‘colossal cough’.
That means that while there might be some carbon contribution from Eyjafjallajökull, it hardly touches upon our own man-made sums.
Nevertheless, it’s worth looking at how European carbon markets reacted to the explosion anyway.
The graphic below shows prices for December as they were just before a Netherlands auction sold 4 m tonnes of fresh EU permits (EUAs) into the trading system.
As Utilyx, a market consultant, noted:
European carbon December EUAs slipped from their 2010 highs hit earlier on Thursday, with financials cashing in on profits made after a the Dutch carbon allowances auction.
And the trajectory, they say, is expected to stay firm in the weeks to come:
Market participants were of the opinion that there is likely to be further upside to carbon prices over the coming weeks.
Of course, though, the bullish sentiment is unlikely to be connected with volcanic eruptions — which if anything highlight an inbuilt weakness in carbon markets.
Rather than adapting to the real-world emissions environment, they are an artificial construct designed to reflect the externalities – or hidden costs — of CO2 emissions, through painfully-negotiated national allocation plans and pollution quotas.
Carbondesk, a carbon brokerage, pointed out that prices have recently instead been supported by the rising energy complex, such as Brent crude and German electricity — and further boosted, they say, by short sellers covering positions.
The resilience of European carbon prices have in fact been a surprise to many, given the recent flow of bearish news.
Related links:
Does Europe need a carbon central bank? – FT Alphaville
Carbon cop-out – FT Alphaville
Carbon indulgences – FT Alphaville