Japan nuclear crisis drives up the demand for carbon allowances

March 15, 2011 - PRLog -- The carbon price in the EU Emissions Trading Scheme (EU ETS) climbed more than 5% yesterday reaching a high of €16.65 (£14.40) a tonne during afternoon trading, as the market responds to the nuclear reactor crisis in Japan. In response to the second explosion that occurred at the earthquake-hit Fukushima nuclear power plant, the price rose from €15.80 a tonne to €16.10 during morning trading.

Demand for EU carbon allowances (EUAs) increased amid speculation that the on-going crisis in Japan would increase demand for natural gas as the country move away from nuclear power.

Any increase in the price of natural gas would make it more attractive for European energy producers to generate power using carbon-intensive coal, which in turn would increase demand from utilities for the EU carbon credits that they have to purchase to cover their carbon emissions.

In addition to this, the price of carbon allowances then raised again to a high of €16.65 after German Chancellor, Angela Merkel, responded to the crisis in Japan by announcing the German government would suspend a controversial agreement that would have extended the life of the country's nuclear reactors.

Merkel said that those nuclear plants that had been due to shut within the next three months before a compromise deal was reached last year with the industry would now close as originally anticipated. She insisted the agreement could be suspended without having to change German law. Demand for carbon allowances again increased with the speculation that any short-term fall in Germany's nuclear energy output would be covered by increased demand for coal.

Any long-term increase in the demand of carbon allowances would increase the price of carbon intensive energy and by extension it would help to make low-carbon energy projects more attractive to investors.

The news about an increase in carbon allowances comes amid growing fears that the crisis at the Fukishima nuclear power plant could result in further radiation leaks as engineers battle to bring the plant's reactors under control. The Associated Press quoted chief cabinet secretary Yukio Edano saying that the fuel rods in three of the reactors appeared to be melting.

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