Size of traded certificates five times higher – large trades dominate

The turn-over at the EU certificates market has been rising constantly since the beginning of September. According to market estimates more than 750.000 t CO2 have been traded per week – more than five times the size from august. For the whole month the turnover is estimated to become between 2,1 – 2,5 mio tons.

„September brought volatility to the market“, stated Markus Hüwener, managing director of 3C climate change consulting in Frankfurt. Up to august trading was used to build up the structures and contacts for the new market. “As it became obvious how the NAP´s would look like the market participants started to trade information” reported the expert.

In February 2005 the CO2 certificates will be booked to the registry accounts of the companies. As it is not possible to start a spot trading without physical certificates the trades done by today are so called forwards. Delivery of these transactions is usually by Dec 1st 2005. Specialists expect that spot trading will boom as soon the certificates are booked to the accounts.

„For the participating companies the main goal is to fullfill the expected future responsibilities“, an emission trader of one big energy provider reported. ”Natural volatility in other areas could be balanced in the short run by adjusting the certificate stock”. It is for example possible that in a good “wind month” less certificates will be needed due to the use of alternative energy.

The price of one t CO2 has traded during the last two month in a very narrow range around 9 EUR. Beginning of the year prices have been very volatile. In January the price of one t rose shortly above 13 EUR. Contrary to that prices decline to 7 EUR per t in March and April. Reason was the concern that the EU member states would be too generous by drawing up the NAP`s. If there are too much certificates on the market there is no more premium for shortage and prices will decline.

As reported by the trading departments of large energy producers the stabilisation in pricings have been accompanied by the increasing turnover. This is a sign for a maturing market. Increasing liquidity generates confidence. The market participants have no longer concerns that the dealing price is far away from the price backed by fundamentals. „The developments in volumes make me feel very optimistic” also Hüwener reported. Even more as there have been traded forwards only up to now.

At this stage the market is dominated by the large energy suppliers and market participants.

Roughly 90 percent of the actual turnover in the ETS is traded by only 10 percent of the market participants. Until the majority of companies will use the possibility of buy and sell certificates it will most probably take some more time is expected by experts.

By Sebastian Sachs, Frankfurt

Financial Times Deutschland, 03.11.2004