EU carbon price rallies on "confusing" emissions data

The price of EU carbon allowances (EUAs) rallied to a two-week high of €12 (£10.92) this morning following the release yesterday of data showing carbon emissions from installations covered by the EU ETS fell 4.2 per cent during 2008 to 1.981 billion tonnes.

However, some analysts warned that the data failed to show the full scale of the fall in carbon emissions, predicting that once the information was analysed fully, a bear market was likely to return.

Henrik Hasselknippe of analyst Point Carbon said that the data released yesterday was incomplete and included installations that had seen their operations extended during 2008, meaning that it could not be compared on a like-for-like basis with 2007.

He added that Point Carbon research suggested that when the data was extrapolated to make it comparable with 2007, emissions were down by six per cent over the year – a larger fall that the 5.3 per cent drop that had been previously predicted.

"Our take on it is that there is still a lot of confusion in the market, we stand by the prediction emissions fell six per cent," he said, adding that the fact emissions were lower than originally expected should send a "bearish signal " to the market.

However, Allesandro Vitelli of analyst IDEAcarbon said that the rally in prices is the result of fears across the market that the fall in emissions, and resulting fall in demand for carbon allowances during 2008, could have been worse still.

"What we are seeing is the market letting out a huge sigh of relief that it is not massively long," he said. "No one was really clear where things were going and this data confirms the market was short in 2008."

Experts agreed that regardless of the scale of the fall in emissions last year, the data provides evidence that the emissions trading scheme is working effectively.

Hasselknippe said the fall in emissions was not only the result of a drop in industrial output during the second half of 2008, but also energy companies switching from burning coal to gas during the first half of the year as a result of a carbon price that peaked at around €30 a tonne.

"The recession has driven the price of carbon down, but the price is doing what you would expect it to do and the market is working," he said.