EU carbon prices rising in volatile market

European Union carbon prices are steadily rising- this week prices have risen to €14.47 a tonne (370 lots traded). This rise in carbon prices was predicted by analysts as early as July, despite sell-offs by traders due to undervalue trading last month.

Despite the price rise, trading has been stifled by the holiday season, "There's very little going on," one trader confessed at the beginning of the week. Quiet power, gas and oil prices confirm this- German power has shifted 5 cents, while UK gas prices have shifted 1 pence. The barrage of short selling before the holidays led to a plunge in German power and UK gas prices- consequently, the EUAs dropped to €13.81 in July. Carbon prices are now closer to their fundamental value of €15 a tonne.

Emmanuel Fages, analyst for Societe Generale, said the low volume of lots traded means carbon prices are still extremely volatile, "The carbon market should continue to be mainly impacted by energy prices, with UK gas first nearby contract and German baseload power for next year the two major drivers."

A chance to fix the volatile carbon price market might present itself in the 16th Conference of the Parties (COP 16), held in Cancun, Mexico from 29th November to 10th December, 2010. Goals for COP 16 include having industrialized countries agree on carbon reduction targets, and integrating US climate legislation. Expectations are low in overcoming the stalemate of COP 15 in Copenhagen however, in particular how rich and poor nations are to cap carbon emissions:

"We will not be able to negotiate a new treaty in Cancun, that much is clear," Mexico's chief delegate Fernando Tudela confesses, "We have a window of opportunity that is closing... What we want to do is rescue these negotiations."

If no agreement is reached, carbon prices will continue as they presently are- up one day, down the next. The volatility of the European Union's emissions-trading system, the world's largest, is due to various failings in the Kyoto Protocol. If emissions are controlled in some countries while neighbouring states continue a business as usual approach, the Kyoto Protocol has only managed to redistribute emissions from regulated to unregulated markets.

In recent EU carbon news, anti-carbon trading activists hijacked the European Climate Exchange (ECX) site. Instead of listing carbon credit futures the rolling ticker on the ecx.eu website was replaced with a "Climate on sale: guaranteed profit!" banner.

The hackers claimed that the ECX is "susceptible to corporate lobbying," "generates outrageous profits for big industry polluters," and is issuing "licences to pollute so they can continue business-as-usual." It took ECX technical staff a day to restore the webpage.

Author: Edurne Scott | Climate Change

Image: openDemocracy | Flickr