Overview

The largest compliance market is the European Union Emissions Trading Scheme (EU ETS) under which almost two billion  tCO2 per annum are capped. This market has also provided a financial incentive for hundreds of millions tCO2 certified emission reductions (CERs) in poorer developing countries around the world, through a mechanism created and governed by the United Nations. China and India, important countries in terms of current and future emissions, are both active participants in this market. 

Prices in the EU ETS have been unstable since the market opened in January 2005. The carbon price rose dramatically in the first few months — more than had been expected — and then showed relatively high volatility within a trading range of €20-30/tCO2. Real data on verified emissions for 2005 released in spring 2006 revealed that most countries had more allowances than they needed, and so the price subsequently crashed. These experiences have alerted companies to the inherently high levels of uncertainty and policy risk in the carbon market. EU ETS allowances in Phase I were based upon projections that incorporated enormous uncertainty, and allowances eventually ended up being worthless. Longer term price movements are more complicated, and an understanding of policy movements is crucial in understanding this government-constructed market.

For more information please visit the links below:

Point Carbon

World Bank Carbon Finance