Warm weather hits price of carbon

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The Independent Online

The price of carbon continued to come under pressure yesterday in the European Union market, hitting a five-month low.

Despite this week's British Government push on environmental issues, carbon hit €10.40 (£7) per tonne, before gaining slightly to close at €11.10.

Masum Bergmann, a broker at Evolution Markets in London, said that the price had run up above €12 last week on expectations of cold weather - which would have raised demand for power and thereby carbon to offset its use.

"As it turned out, the weather was not so cold as the forecasts had predicted," Mr Bergmann said.

Heavy industry such as power generators and refiners have to buy permits to emit carbon dioxide if they exceed their emissions quota, and the demand for permits sags if it is cheaper to burn low-carbon gas and oil than dirtier coal.

However, the market has an inbuilt weakness as a surplus of permits for carbon emissions was issued, particularly for the first phase, which runs up to 2008, so emitters do not need to buy more in the market.

In reaction to this weakness, yesterday 13 investment banks plus other players active in the world's emerging carbon market clubbed together to form a new group to lobby policymakers for a stronger European Union scheme.

The new group, calling itself European Carbon Investors and Services (ECIS), aims to put pressure on the European Commission and EU member states to take a tougher approach after they gave too-generous quotas in the first phase from 2005-07.

The future of the European Union's carbon trading scheme is up for grabs over the coming months as the European Commission judges member states' emissions plans for 2008-12, the second phase of the scheme.

The market forces companies to buy permits if they exceed their quotas for emissions of the heat-trapping gas carbon dioxide (CO2), and it is the bloc's key climate change strategy.

The price of European carbon hit an all-time high of more than €30 per tonne in April, before the disclosure of the 2005 surplus sent prices crashing.