SINCE TRADING IN carbon dioxide emissions began to take off with the implementation of the European Union Greenhouse Gas Emissions Trading Scheme in January 2005, the price of an allowance to emit one tonne of CO2 has risen from €8 to about €27, hitting a peak of €29 in July 2005.
The emissions market, which sets a limit on the total amount of CO2 that industry can emit and which allows participants to trade emission permits, is already having a big impact on energy prices and consumption patterns, which could benefit renewable energy. The scheme appears to be working as intended, but is also having some unanticipated consequences, with surprising beneficiaries making what are effectively windfall profits from it.
Higher demand for coal and lower than normal reservoir levels in much of Europe, which means that less electricity can be produced from emission-free hydroelectric generation, has contributed to a steep rally in CO2 allowance prices since November. The price of an allowance to emit one tonne of CO2 rose from €19.75/tonne in November to more than €27/tonne in March.
At the same time as CO2 allowances have been appreciating, the gas-to-coal differential, the ‘clean-dark spread’, has narrowed in Europe because the price of gas has fallen and the price of coal has risen.