That system, however, is in deep trouble. A drastic drop in industrial activity has sharply reduced the need for companies to buy emission rights, causing a gradual fall in the price of carbon allowances since the region slipped into a multi-year economic crisis in the latter half of 2008. In recent weeks, however, the price has appeared to have entirely collapsed — falling below $4 as bickering European nations failed to agree on measures to shore up the program.
The collapsing price of carbon in Europe is darkening the outlook for a greener future in a part of the world that was long the bright spot in the struggle against climate change. It is also presenting new challenges for those who once saw Europe’s program as the natural anchor for what would eventually be a linked network of cap-and-trade systems worldwide.
Carbon “started as the commodity of the future, but it has now deteriorated,” said Matthew Gray, a trader at Jefferies Bache in London and one of a diminishing breed of carbon dealers in Europe. “Its future is uncertain.”
The problems plaguing Europe’s cap-and-trade system underscore the uphill battle for international cooperation in the global-warming fight. After middling progress at various summits, officials from more than 190 countries have been charged with forging a global accord by 2015 aimed at cutting carbon emissions. But critics point to the inability of even the European Union — a largely progressive region bound by open borders and a shared bureaucracy — to come together on a fix for its cap-and-trade system as evidence of how difficult consensus building on climate change has become.
Negotiations to launch a similar system across the United States collapsed in 2010, replaced with a regional approach in which California, for instance, moved forward with its own program. Aided by a boom in cheaper and cleaner shale gas as well as the spread of more renewable energies, including wind and solar, the United States has — like Europe — nevertheless seen a continuing drop in its overall emission levels.
But there are also signs that years of increasing investment in clean energies are ebbing on both sides of the Atlantic. In 2012, overall clean-energy investment in the United States fell 37 percent,to $35.6 billion, compared with a year earlier, according to a new report by the Pew Charitable Trusts. European countries, including green leaders such as Germany, also saw declines, leading analysts to call the problems with the region’s cap-and-trade system that much more troubling.