UK carbon emissions trading prices surge on demand
LONDON - Prices in the UK carbon emissions trading market have jumped as companies buy credits to ensure meeting targets to cut greenhouse gases, industry players said yesterday.
They said prices had more than doubled since the voluntary trading scheme\'s launch in April to above 12 pounds ($18.58) a tonne.
Trading enables companies that cut emissions above government-agreed targets to sell credits to those unable to meet the reductions. Companies missing their targets lose a tax rebate - a powerful incentive to buy allowances.
\"Prices have climbed as small emitters find out they could lose a lot (of money) if they miss their target,\" said Kristian Tangen of Point Carbon, an Oslo-based independent research group on emissions trading.
The first year of emissions measurements finished at the end of September for some of the nearly 6000 companies covered by the climate change levy, a tax on industry\'s energy use. Other sectors finish in the coming months, with all having to report to the government by February.
The UK was keen to kickstart emissions trading ahead of a possible international system by 2008, as part of its commitments to the U.N. Kyoto Protocol, with greenhouse gases blamed for contributing to global warming.
\"The risk in terms of the climate change levy rebate has driven the interest, with a lot of companies coming in for a one-off trade,\" said Tim Atkinson of brokers Natsource. \"There\'s limited supply and a lot of demand.\"
So far almost all of the companies covered by the climate change levy have been unable to sell, adding to the heat under the market.
\"The Climate Change Agreement (CCA) companies are not able to generate allowances until the end of their milestone year,\" said trader Garth Edwards of energy major Shell .
That leaves energy trading houses - with Shell a major player - and the thirty-four organisations that entered the UK scheme directly, who received government cash in return for setting reduction targets.
\"A lot of direct participants have also not verified their baselines yet and are not comfortable with trading,\" said another carbon broker.
Some industry players expect prices to drop once the larger companies - such as those in the chemical sector - receive credits to sell, through increasing energy efficiency.
The last offer was at 12.30 pounds ($19.05) a tonne of carbon dioxide equivalent, with no bids against it, while the highest deal done so far was at 12.40, brokers said.
They said overall there have been around 200 trades of about 800 UK allowances, equivalent to 800,000 tonnes worth of carbon dioxide emissions. There have also been forward trades, for delivery of emissions cuts by 2003 or 2004.
Despite the slump in world stocks this year, as yet few speculators or fund managers have attempted to profit from the rising market, industry players said.
\"We\'ve had one or two individuals interested, but no investment banks,\" said one trader.
Story by Neil Chatterjee
REUTERS NEWS SERVICE
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