March 7, 2022
Market Failure for Carbon Price
When crisis hits, carbon prices go down allowing more CO2 pollution.
Feature or bug?
The 24 February 2022 invasion sent carbon prices plunging from €97 in early February down to below €65.
At the same time, the price of oil is skyrocketing – causing a strange situation. Investment in oil production is spurred, but as a consumer finding an alternative is also driven.
Investment in finding alternative production has lead the US to move to other lesser foes (like Venezuela) in the production of oil for export.
“We’re continuing to underestimate the oil price that the world can cope with,” Malek [a managing director at JPMorgan] says. If this is your first oil shock and you’re already wincing at the petrol pump, brace yourself. The market thinks you can probably take more price pain.
The investors think that people will absorb the new higher price and not shift purchasing to alternatives. And, there is now – with lower carbon prices – less of a reason for investors to invest in those alternatives.
So, all bad for the climate?