As the European Commission implements more stringent national caps on carbon dioxide emissions this spring, demand is rising on the emissions markets for the allowances that let companies emit more CO2.

Credit: SOURCE: EEX

Several million allowances are traded daily at five European carbon exchanges, including the European Energy Exchange (EEX) in Leipzig, Germany (above).

Many energy-supply companies in the European Union (EU) are snapping up allowances now, in the expectation that they will cost more by next year. The price of an allowance to emit one extra tonne of CO2 in the second phase of the European emissions-trading system, from 2008 to 2012, has almost doubled since February, reaching a year high of €22 (US$30) on 22 May.

EU emissions trading, introduced in 2005, seems to have got over an early phase of pronounced, and at times worrying, turbulence, analysts say (see Nature 441, 405; 2006). Thanks to the reduced caps for the second trading period, the market is now unlikely to collapse, according to one senior market-watcher based in Amsterdam.

“There is a lot more clarity now,” agrees Milo Sjardin, who watches carbon markets for New Carbon Finance in London. “Uncertainty hasn't gone away entirely, but the market is definitely more robust than it was.”

There is not yet enough liquidity on the market to prevent single, large transactions from moving the price up or down. But brokers are confident that the price will continue to rise moderately through the summer, perhaps levelling off towards the end of the year when power companies have signed their contracts for selling electricity in 2008.