Carbon markets not working, says Deutsche Bank

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Carbon markets not working, says Deutsche Bank


2nd November, 2009

Carbon markets are not working and UK and US government policy is not encouraging investment in renewable energy, says a leading bank

A report from Deutsche Bank’s Asset Management division (DeAM) says that the carbon market is not likely to contribute to significantly cutting emissions, ‘for the foreseeable future.’

It says that governments should focus on introducing stronger incentives like feed-in tariffs if they want to meet emission reduction targets by 2020.

‘What investors want is Transparency, Longevity and Certainty – “TLC” – in policy regimes to mobilise capital,’ said Kevin Parker, Head of DeAM.

‘Many major emitters such as the US and the UK do not have enough “TLC” in their policy frameworks.

‘Our rankings show that China has a lower risk for climate change investors, as does Germany, but the research also shows that in order to avoid catastrophic climate change, all countries will have to do more to encourage investment.’

Carbon markets

Looking specifically at the carbon markets, the Bank’s report says:

  • Free allocations of carbon credits tend to create market distortions. Therefore, allowances should be auctioned to covered entities so that prices are determined on the basis of fundamental supply and demand.


  • On short-term market intervention (i.e. keeping carbon price high), periods of high volatility and low liquidity can discourage investments in clean technologies.


  • On offsets, the provision of domestic and international offsets will encourage entities outside the trading system to undertake projects – and potentially programs of work – that reduce emissions.


  • On investment in clean technologies, the proceeds of allowance auctioning should be used by government to provide financial incentives that promote investments in renewable energy and other clean technologies integral to a low carbon economy. Interventions that reduce risk for clean technology projects, such as feed-in tariffs or loan guarantees, are particularly attractive.

Useful links
Deutsche Bank report

Carbon Trading and the limits of free-market logic
Carbon trading, its backers claim, brings emissions reductions and supports sustainable development in the global south. But, argues Kevin Smith, it may do neither, and is harming efforts to create a low-carbon economy

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