Carbon market poised for first wave of post-2013 trading

The first wave of trading in EU carbon allowances (EUAs) for the next phase of the scheme starting in 2013 is expected to take off within the next few months, in a sign that many participants in the market remain confident in its long term prospects.

The EU emissions trading scheme (ETS) has been heavily criticised in recent months after falling industrial output led to reduced demand for carbon allowances. Consequently, the price of carbon allowances has collapsed from a high of around €30 last summer to less than €10 earlier this year, before recovering slightly to its current price of €12.50.

However, Chris Leeds, a director in Barclays Capital's carbon trading team, insisted that despite tough trading conditions there were signs of long term confidence in the market. Most notably, in the form of early indications that firms are already preparing to buy EUAs for use in the next phase of the scheme, which starts in 2013 and will impose tighter carbon caps on heavy emitters.

He said that there had already been small volumes of futures trades in EUAs for use in the post 2013 phase and predicted that the trend will increase in the coming months.

"We expect to see trading in post 2013 credits and that will give people real confidence in the market," he said, adding that recent indications from EU legislators that they are not going to intervene in the market to bolster low prices had also given firms confidence to start planning how they will comply with tighter caps through the post 2013 phase. "The EU saying they are not going to meddle will give people more confidence to invest in low carbon technology" he said.

Leeds said that allowing firms to transfer unused EUAs into the next phase of the scheme had also ensured that the price of carbon had not collapsed completely despite plummeting emissions from industries such as concrete and steel.

"If you couldn't bank EUAs for the next phase, the price would be much lower now, but people now that they can roll them over and that they will need them post 2013 when the caps are tighter, so they are holding on to them" he said. " The market is actually working a lot better than people realise and will be even better after 2013."