Credit: EUROPEAN ENERGY EXCHANGE

The European market for emissions trading has recovered its balance after turbulence earlier in the spring, when uncertainty about the market's future saw allowances lose half of their value.

Options to emit a tonne of carbon dioxide are traded on five European exchanges, including the European Energy Exchange in Leipzig, Germany, charted here. The price rose from a low of about €10 (US$13) per tonne in early May to a high of €18 on 18 July, before settling in a band of between €15 and €17. Although heatwaves throughout Europe have driven the demand for fossil energy, emission allowances are significantly cheaper than during the cooler summer of 2005, when the price peaked at almost €30.

This year's lower price is no surprise to market analysts. “Everybody knows by now that governments have over-allocated emission rights to industry,” says Stefan Kleeberg of Climate Change Consulting in Frankfurt, Germany. Increased sales bring down the price every time it approaches the €17 margin, which speculative traders believe is about the maximum value the options can currently achieve, he says.

The volume of transactions is down by half compared with its peaks last year, but analysts say that it is likely to rise again after the summer break.

Carbon dioxide emissions are expected to rise too, says Guy Turner, director of New Carbon Finance in London, as high oil and gas prices are forcing an increased use of coal in electricity generation. But analysts doubt whether prices on the emission allowances will go much higher, as most industries own plenty of surplus options.