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Carbon trading grows into new year

Volume rises as price falls in first week of EU trading scheme.

The European trading scheme aims to cut carbon dioxide emissions by 1% a year. Credit: © Getty Images

Activity on the international carbon-trading market has grown following the launch of the European Union's Emissions Trading Scheme on 1 January. The volume of trading had already doubled in both November and December 2004.

The idea of a carbon market is to allow industrial organizations such as power companies and factories to buy and sell the right to emit greenhouse gases such as carbon dioxide.

And companies have been trading in carbon emissions voluntarily since 1998 (see ""The carbon game":/news/2004/041115/full/432268a.html"). But 2005 has seen the advent of a Europe-wide scheme that will standardize the process and prepare the union for the forthcoming implementation of the Kyoto Protocol. The project is a step up from smaller US schemes and involves some 12,700 organizations in the union's 25 member states.

Each state is given a national allocation of carbon credits, with the aim of cutting emissions by around 1% a year during the project's first phase, which runs until 2007. It then farms these out to individual companies.

Yesterday and the day before saw a real downturn in the market. Reena Qureshi , Emission brokers

Traders can buy extra credits, giving them the right to exceed their emissions limit, or sell them if they are below their limit. Companies that fail to stay inside their limit face a fine of ?40 (US$52) for every tonne of excess carbon dioxide that they emit.

Hot air

The amount of activity on the market has grown exponentially in recent months as traders readied themselves for the European scheme. On 6 January, brokers oversaw deals involving some 600,000 tonnes of carbon dioxide emissions, says Reena Qureshi of London-based brokers And this daily total looks likely to grow steadily, as more traders join the market.

Prices on the market have decreased since the end of December, however. The price of a tonne of carbon dioxide credit has fallen by about a euro, from ?8.5 to ?7.65.

"Yesterday and the day before saw a real downturn in the market," Qureshi told "There has been a big dive."

This is likely to be a knock-on effect of other changes in the power sector, she explains, especially shifts in the coal market. Qureshi suspects that a drop in the use of coal has caused predicted carbon-dioxide emission levels to drop, making carbon credits less valuable.

Analysts will continue to watch the market's movements closely as more traders enter the fray. With the European scheme only a few days old, it is not yet clear whether the price fall is a genuine trend or whether the market will soon bounce back.


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Hopkin, M. Carbon trading grows into new year. Nature (2005).

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