Price Floor for Carbon

Michael Grubb of Carbon Trust and a member of the UK Committee talks about the price floors built into the EU carbon markets through the use of auctions with a minimum set price. However, since the EU Emissions Trading System (ETS) allows trading of validated credits from the developing world through Kyoto's Clean Development Mechanism (CDM), and the overall demand for carbon has dropped substantially, the floor may not have the intended effect. In order for the price floor to be effective, the supply of the CDM credits should also be substantially reduced. This does not seem to be an appropriate time for reduction of CDM credits, as the these credits could potentially help the developing world mitigate the negative impact of the global financial crisis.