The price of CO2

The EU ETS is the main indicator of global carbon finance, as until the beginning of the Kyoto market for states in 2008, it is the only mandatory international market for GHG emissions permits.

In the European system, trades between buyers and sellers occur either face to face, through bilateral contracts which are generally confidential, or through marketplaces, electronic portals which publicly release the price and amounts exchanged.

Two prices are currently observed on the European Market :

  • The allowance price for the first period is the spot price, or the price for immediate delivery. 
  •  The allowance price for the second period is the forward price, the price for allowances to be delivered in the future.

How does the price of CO2 affect you?

During the first period, the number of allowances allocated exceeded the emissions of covered installations. As the European Commission had forbidden the banking of credits from one period to another, the price of first period credits collapsed, converging near zero. The consistently higher second period price can be accounted for by the cancellation of this rule and more stringent allocations to installations.

Unlike the EU ETS, American emissions permits markets such as the Chicago Climate Exchange or RGGI are not regarded as international indicators. The price of CO2 on these markets is different because they are based on voluntary commitments by market participants.

In the future, linking different regional initiatives within a large global CO2 market will necessitate a consideration of common allocation and trading rules.