Not much charisma but nearing the winning post

It is the sort of thing that will have environmentalists emitting steam. Spread betting company IG has opened markets on the price of carbon dioxide, the greenhouse gas that will cause the polar ice-caps to melt by the end of century if scientists are to be believed.

The EU Emissions Trading Scheme directive gave birth to the world’s largest market in carbon dioxide emission allowances on the first day of this year.

Each member state is required to prepare a plan for how much carbon dioxide installations such as power stations are allowed to produce. If one breaches the cap they are set, it will have to buy spare allowances from others or face a hefty fine. If a company emits less carbon dioxide than its cap at the end of a compliance year, it can sell its excess allowances to those that exceed their cap so they can escape fines.

Naturally, where there is a commodity to trade there will be a futures contract set up to enable companies to easily trade with each other throughout the year. IG offers a spread bet on the price of the futures contract.

The hard core environmentalists find the concept of trading carbon emissions like this anathema, arguing that companies that breach limits should simply face heavy fines to force them to clean up. Others see it as a great way to encourage better behaviour – if companies can make money from keeping emissions down they have a big incentive to stay clean or even improve.

IG is currently offering a spread of €22.55 to €22.75 on the December contract, and the market is certainly volatile enough to make it worth playing. The contract price yesterday stood at around €22 per tonne of CO2, about where it was eight weeks ago. But it surged to a high of €29.50 in early July, then dipped to €20 in August and rose again to €25 in early September.

The past week has seen little change, but the smart money is that this will not last, and most punters are selling the spread.

Bets are settled on December 16 and are based on the official carbon market closing price. As usual, profits can be taken or losses realised at any time.

This entry was posted on Tuesday, October 4th, 2005 at 9:49 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.