Spread Betting on Carbon Emissions

One of the options available to people spread betting in the UK is now spread betting on carbon emissions.

The European Union Emissions Trading Scheme was the world’s first large-scale emissions trading scheme and is still the largest. It was launched in 2005 to address climate change and is a major element of EU climate policy. It is a “cap and trade” system.

As of June of this year, the Scheme covered over 11,000 factories, power stations and other facilities in the 27 member states of the EU in addition to Liechtenstein, Iceland and Norway. Together, these installations generate almost half the CO2 emissions of the EU and 40 percent of its greenhouse gases. Australia, one of the world’s leading emitters of greenhouse gases per capita, will join the scheme in 2015.

The cap is a limit to the quantity of greenhouse gases that can be emitted, which reflects the industry of a company. The trade aspect occurs when companies reduce emissions by more than required and can save the unused allowance for the future or sell it. If emissions are not reduced below the given limit, a penalty is imposed unless an organisation buys an allowance.

It grows ever more difficult to reduce carbon emissions. Market forces will determine whether an organisation modifies equipment or merely purchases an allowance.

There is no such thing as an experienced trader in carbon emissions. Everybody has to learn as they go along. Large investment banks including JPMorgan, Goldman Sachs and Barclays are said to be becoming interested in carbon trading.

The market is highly volatile and illiquid, and subject to the whims of politicians. When spread betting on carbon emissions, you should study charts to identify resistance and support levels and trend lines. You can test a trading plan on historic data and then on a demo account for a week or two.

You should keep abreast of government intervention. Periodically, auctions of carbon credits cause the market to move dramatically. It is safest to refrain from betting in the run up to an auction, but gamblers will place a bet on how they believe a government will act.

The EU recently modified its Scheme, although by less than campaigners and green businesses had demanded: the timing of auctions will be changed. After changes were announced in July, the price of carbon fell, because analysts had expected greater change. The current price is around £5.40 per tonne of carbon, well below the price of £20 to £32 believed by analysts to encourage companies to change their actions. Connie Hedegaard, the climate chief of the European commission, said further, greater reforms would be forthcoming.

Because economic activity in Europe is depressed and possibly because emissions forecasts were overstated when allocations were set, there is a surplus of carbon permits – Certificates in Emission Reductions – of six or seven percent. Many companies will pay no price for carbon emission for years. The EU could cut credits dramatically.

If alternative source of energy such as biofuels become more productive, emissions will reduce and so will the price of carbon credits.

There is, however, pressure in the other direction. The EU members, Germany, Belgium, France and Italy, have declared that they will move away from or phase out nuclear power. Throughout the EU, expensive carbon capture and storage (CCS) mechanisms will be fitted to power plants that use fossil fuels. These systems remain untested on a commercial scale.

There are people who say that within ten years, carbon will be a major, globally-traded commodity like oil.

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