Carbon markets creates price hikes in Europe

http://bit.ly/7XwAG


Carbon Markets Create Price Hikes in Europe

http://bit.ly/7XwAG


Based on my Article published in Technorati

Energy prices doubled in Europe from 2004 levels after implementation of the EU ETS 1, reports a Bloomberg study linking carbon prices to the energy price hike.

A Bloomberg energy analyst had predicted before the Copenhagen conference that another related energy price hike was on the way. However, the failure of COP15 to create an emissions accord dampened speculative activity in Europe’s carbon markets, ensuring a fall to lower levels thereafter.

A look at the futures market shows us sharp fluctuations in carbon prices since 2004. Starting strong at slightly over €25, the carbon prices peaked at €33 in April 2006 before plummeting (below €1 in unofficial deals outside the energy exchanges).

Seeing the carbon prices dissipate like so much hot air had the EU in a flutter. The official trading prices of carbon in Amsterdam and London were controlled by choking the issue of free permits (blue lines in graph below).

http://bit.ly/8TTMvR See Graph at Technorati


The controlling of free issue of EU ETS I by the European Commission alone was not enough. Many countries, including France and Germany, had received over 20 million excess carbon permits resulting in abundant availability in the market.

Carbon prices kept on moving down and volumes refused to grow until the beginning of 2007, as permits issued were reportedly 6–10% over the actual demand. French and German companies were sitting on a unsold pile of carbon permits as the bottom dropped out and EU ETS Phase 2 was ushered in 2008. The new series of EU carbon credits saw volumes rise again as the old permits were no longer valid, but some lost out in process.

Though there is no direct relation of the two, there was a sharp price rise in the energy sector after the implementation of EU ETS phase I and commencement of cap and trade.

This becomes all the more worrisome for the consumer as, since the 1990s, energy prices had been dormant in Europe and stock prices in the energy majors had never been as buoyant as they are now. Did hot air from the carbon trade blow away the consumers' dream of stable energy prices in Europe?