Will economic slowdown adversely effect carbon market growth?

The credit crunch has had a huge impact on the oil prices which have now dropped to $100 per bbl. Early July carbon prices experienced significant price rise due to increasing oil prices and now these prices have stablised with oil price becoming relatively steady. Although economic growth and thus the industry output is witnessing a slowdown but an increasing rate of electricity demand pushes the power sector to continue to generate more electricity and thus emit more carbon dioxide. The slowdown may cause a 1% or 2% carbon emissions decrease in large power plants but the total emissions would still be higher than last year. Increasing carbon emissions calls for more carbon permits. Clearly, the demand for carbon credits would continue to grow in near term.

However, negative investor sentiments and high-priced debt could lead to a cut in supply of fund to renewable energy projects which would deter the growth of carbon market in medium term.

Liquidity crisis means that the banks and other lenders are less willing to give loans as they are skeptic about their loans being repaid. The flow of capital has slowed down in across all the sectors in the industry. Loan for renewable energy sector could also witness short-supply. Many project developers in such a scenario would look at other financing options - pension funds & equity investors. However, in a long run the clean energy sector appears to be a more competitive sector vis-à-vis the others considering rising energy demand & global warming which is know acknowledged by more & more nations.