The European Union carbon market, where prices have plunged by half in the past year, should consider installing a more flexible cap such as that proposed in Australia, said the Carbon Market Institute. Prices in the EU program, the world’s biggest greenhouse gas market by traded volume, dropped as the region’s sovereign- debt crisis exacerbated an oversupply through this year and beyond. The cap for 2020 was set in 2008. In the Australian market, annual supply of permits will be set five years in advance. Stagnant economic production and demand have prompted criticism that the EU’s cap is not protecting the climate as much as it should, said Mike Tournier, executive director of the Carbon Market Institute, a Melbourne-based industry group that promotes emissions trading. “There are obviously market and environmental benefits of having a mechanism to review the cap and lower that over a period of time,” Tournier said Jan. 30 in a London interview. The European market will probably be 1.1 billion metric tons oversupplied in the five years through this year, including expected use of United Nations offsets, according to an estimate by Konrad Hanschmidt, an analyst in London for Bloomberg New Energy Finance. That’s almost half the expected emissions this year from the factories, utilities and airlines in the system. In Australia, the government fixed the price for the first three years of the program starting in July at A$23 ($24.50) a metric ton. The cap for each of the five years through 2019 will be set by May 31, 2014, according to the published plan. The 2020 cap will be set by June 30, 2016 and total supply will continue to be set annually from then, five years ahead.
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