The collapse of three mid-tier American banks in quick succession, followed by a hastily arranged weekend rescue deal of one of Switzerland’s “systemically important banks” may have some carbon market investors nervously suffering from déjà vu given the obvious parallels with events 15 years earlier.
Two months after Bear Sterns was rescued the EU carbon price began to fall precipitously. Peaking at almost €30 per tonne in May 2008, carbon lost two-thirds of its value over the next eight months. By mid-January 2009 the price fell below €10 per tonne.
Upmost in the minds of market participants during the Great Financial Crisis (GFC) was the fear that a prolonged economic stagnation would lead to a significant decline in demand for EUAs. The financial crisis exacerbated the negative downward spiral as utilities and financial institutions stepped back from the market as counterparty risk soared, while many industrial emitters sold their free allocation of EUAs to build capital.
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