Launched in 2005, the European Union's emissions trading system represented a huge step forward in the fight to curb global warming.
Under the scheme, some 5,000 companies generating half of the EU's greenhouse gas emissions must surrender a carbon permit for each tonne of carbon dioxide (CO2) they emit.
Some factories receive permits for free, while most power firms buy them from companies with a surplus or from state-backed auctions held almost every day. The higher the price of the permits, the higher the cost of polluting.
The EU hoped the system would force power companies and industrial companies to reduce emissions and invest in clean technologies. But prices in the market have dropped so low they now have little impact on investment plans.
The permits, traded by manufacturers and banks, have plummeted to less than €3 a tonne of CO2, compared with €7 a tonne a year ago and around €30 per tonne in 2008, because of Europe's economic slowdown, which has reduced both power generation and manufacturing, thereby causing an oversupply of permits.
The impact is evident. European investment in clean energy fell 25 per cent in the first quarter of this year from the same quarter last year, according to Bloomberg New Energy Finance. The slump in permit prices has also prompted European power companies to burn more coal, which is a big source of CO2.
Analysts say carbon permit prices should be at more than €35 a tonne to encourage electricity generators to switch from coal to gas.
After months of debate among ministers, policymakers and industry chiefs, the European Commission, the executive body of the EU, came up with a plan to boost the permit prices artificially through "backloading" - temporarily cutting the supply of permits by 15 per cent in the hope prices would rise.
But the European Parliament rejected the plan last month because many conservative policymakers feared higher carbon prices would cost jobs and harm economic growth in Europe, much of which is plagued by unemployment and recession as a result of the debt crisis.
"This is a black day for climate protection in Europe," said the leader of Germany's opposition centre-left Social Democrats, Sigmar Gabriel, after the vote.
Critics says policymakers have sounded the death knell of Europe's main instrument in the fight against global warming. The proposal will now go back to a parliamentary committee for further debate. Permit prices tumbled 40 per cent to below €3 after the vote. Banks and trading houses may now abandon Europe's carbon market altogether, making government auctions of permits more likely to fail.
Campaigners and traders warn the carbon price could now fall below €2 or even to near zero.
Despite the price fall to just €3 from €30 five years ago, speculators remain in the market to profit from price volatility. But they might quit because it seems likely prices will remain low. Some big players have already left or cut trading staff.
"Europe needs a robust CO2 market to reach our climate goals and spur innovation," says the EU climate commissioner Connie Hedegaard.
Whether it will get one is now highly uncertain.
business@thenational.ae
The Details
Article 15
Produced by: Carnival Cinemas, Zee Studios
Directed by: Anubhav Sinha
Starring: Ayushmann Khurrana, Kumud Mishra, Manoj Pahwa, Sayani Gupta, Zeeshan Ayyub
Our rating: 4/5
COMPANY%20PROFILE%20
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
COMPANY%20PROFILE%20
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Look north
BBC business reporters, like a new raft of government officials, are being removed from the national and international hub of London and surely the quality of their work must suffer.
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
BUNDESLIGA FIXTURES
Friday Stuttgart v Cologne (Kick-off 10.30pm UAE)
Saturday RB Leipzig v Hertha Berlin (5.30pm)
Mainz v Borussia Monchengladbach (5.30pm)
Bayern Munich v Eintracht Frankfurt (5.30pm)
Union Berlin v SC Freiburg (5.30pm)
Borussia Dortmund v Schalke (5.30pm)
Sunday Wolfsburg v Arminia (6.30pm)
Werder Bremen v Hoffenheim (9pm)
Bayer Leverkusen v Augsburg (11.30pm)
Islamic%20Architecture%3A%20A%20World%20History
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The Bio
Favourite vegetable: “I really like the taste of the beetroot, the potatoes and the eggplant we are producing.”
Holiday destination: “I like Paris very much, it’s a city very close to my heart.”
Book: “Das Kapital, by Karl Marx. I am not a communist, but there are a lot of lessons for the capitalist system, if you let it get out of control, and humanity.”
Musician: “I like very much Fairuz, the Lebanese singer, and the other is Umm Kulthum. Fairuz is for listening to in the morning, Umm Kulthum for the night.”