Carbon dioxide prices crash as chaos hits emissions trading

The price of carbon dioxide has crashed after the first week of proper trading, as deepening uncertainty over the emission trading scheme prompted traders to sell their holdings.

The price of carbon dioxide has crashed after the first week of proper trading, as deepening uncertainty over the emission trading scheme prompted traders to sell their holdings.

Prices ended the week almost 20 per cent down on the price on 1 January when the initiative was launched.

Under the European Union scheme, aimed at reducing global warming, companies are told how many tons of CO ₂ they can pump into the atmosphere each year. If they exceed their allocation, they have to buy "carbon credits" from under-polluting companies.

But analysts said that few companies participating in the programme had bought any credits so far because five countries - including the UK - have yet to finalise their plans and so cannot tell companies how much they can pollute.

The uncertainty for UK participants increased last week when Brussels rejected Britain's revised plan for the scheme. UK companies will not know their individual allocation until the end of March at the earliest.

A tonne of CO2 exchanged for €6.88 when markets closed on Friday, down from €13 at the start of last year in the "grey market".

Some2 million tons of carbon have changed hands so far this year because of traders' rush to sell. This compares to a total of 10 million tons of trades in the two years before 1 January.

Veronica Smart, an analyst at Energy Information Centre consultancy, said: "We saw a crash in prices the moment the scheme launched.

"If I were a UK participant I would not buy or sell anything when there is so much uncertainty," she said. "In the UK, hardly any participating companies have bought credits."

Low gas prices, which encourage electricity generators to use gas rather than dirtier coal, were also pushing down carbon dioxide prices, she added.