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Europe’s carbon market has many critics, largely because of the volatility of the price of emissions permits. Yet for Fulvio Conti, chief executive of Enel, Italy’s largest electricity company, cheap allowances can be a sign that the system is working.

His main concern is that the burden of emissions reduction is excessively concentrated on the European Union, and on the European power industry in particular. And looking ahead to this month’s crunch climate talks in Copenhagen, Conti warns that, in some areas, EU policy is heading in the wrong direction.

“I want Copenhagen to be a successful meeting, and the energy industry needs to be more involved in the discussions,” Conti told the Financial Times on a recent visit to London. “But if we leave it to governments, we could end up with a system that is inflexible and inefficient.”

Conti is clear that carbon markets, rather than a carbon tax, should be the instrument for curbing emissions. “A carbon tax can distort market mechanisms,” he says. “If you have a clear, transparent market for carbon, it will give industry a signal that companies can take advantage of to plan investments in low carbon.”

With a carbon market, there is an incentive for companies to make emissions reductions at the lowest cost. Seen in that light, the plunge in emission permit prices from €29 ($44) last year to a low point of €8 in February (prices are currently trading at about €14) is a sign not of the flaws in the carbon market, but of its success.

“A low carbon price – in a perfect market – shows that the system is working,” Conti says. “Cheap carbon permits indicate that we are doing our best, and seeing a lot of carbon reductions.”

Critics argue a low carbon price does not create enough of an incentive for investment in high-cost but low carbon energy, such as offshore wind, nuclear or the nascent technology of carbon capture. However, Conti says this is a problem largely because the market covers only Europe. His answer is a carbon market that covers the whole world.

He says: “We need a high price of carbon to secure investment, because we Europeans are the only ones applying this system. If the US, China and India joined in, you will have the immense benefit of a broader market – and more opportunities to cut carbon more cheaply.

“The whole world is affected [by climate change], and we would be better off using money on projects where we can get the greatest saving in emissions for the cost. We should establish a carbon market for the world that is liquid and transparent.”

It is the emerging economies, where costs are lower and energy is often used less efficiently, that offer the cheapest opportunities to cut emissions.

“In the developed world, we tend to have greater efficiency and lower greenhouse gas emissions per unit of output than in many developing countries,” he says. “So if you spend $100, you should be able to get a lot more greenhouse gas reductions in China, India or Brazil than in more mature markets.”

While a single, integrated global carbon market is probably decades away, one option on the table at Copenhagen will be to create an international framework to take advantage of these lower-cost opportunities.

The EU, however, is planning to move away from this type of framework by restricting the use of Europe’s emissions trading scheme of emissions reduction certificates earned under the United Nations clean development mechanism.

At present, under the EU’s ETS scheme, companies can buy some of the permits they need from CDM projects in emerging markets, typically China. From 2013, however, the use of CDM certificates will be restricted.

This will create a problem for companies such as Enel, which, along with Endesa, its Spanish subsidiary, acquires 13 per cent of its carbon permits through the CDM.

“It is insanity to reduce our commitment to a system that will allow us to spend money more efficiently, and allow China, India and Brazil to cut their emissions without threatening their development,” Conti says.

“There should, as much as possible, be a common international system for emissions. So a company like Enel, which has operations from Portugal to Russia, can take advantage of the opportunities wherever they are best value.”

As well as pushing for an international framework, Conti says the leaders at Copenhagen should focus efforts on spreading the burden of cutting carbon beyond the electricity industry, which accounts for less than 30 per cent of global greenhouse gas emissions.

“As an industry, the generators and suppliers of electricity feel that we are contributing our share – more than our share – of the effort to tackle climate change,” Conti says. “But we are concerned that we are one of the few groups acting seriously in that regard. We need to ask governments to introduce policies that bite all industries that create greenhouse gas emissions.”

Yet even if there is no deal in Denmark, Conti believes many of the trends seen in the energy industry in recent years will continue.

He says: “I still see the US administration pursuing policies to support renewables and energy efficiency. I still see China seizing business opportunities and capturing efficiency gains in its economy. It will also continue to tackle local pollution, because it sees other problems, such as nitrogen oxides, sulphur and metals, as more immediate dangers than carbon dioxide. But [if] you abate those other pollutants, you also abate carbon dioxide.”

Those changes, he believes, point to a continuing shift away from burning fuels and towards electricity as the primary medium for energy use in battery-powered cars, for example. “I see a vision of the cities of the future, when the filling station would have a ‘pump’ for electricity with the Enel brand on it,” he says. “It might not be that far away.”

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