Commission reassures on carbon price crash

The EU Emissions Trading Scheme (ETS) is "working as it's supposed to work" in responding to lower levels of carbon dioxide (CO2) emissions than expected, according to a leading European Commission official. Peter Zapfel, EU ETS co-ordinator, said recent market volatility is "what might be expected from a learning period".

"Recent developments underline the learning-by-doing character of the first trading period," he told Carbon Finance. "Since the scheme has started, that's been a bit forgotten.

But the end of the first full [annual] cycle now gives us a much better fact-based platform on which to proceed." Zapfel was responding to the late April collapse in the price of EU allowances (EUAs), when EUAs for delivery in the first phase of the scheme (which runs from 2005 to 2007) lost more than 60% of their value - with Phase I allowances crashing to €11.5($14.5)/tonne of CO2 on 2 May from €30/t on 24 April. The price fall followed the publication last week of reports from several EU members showing that their 2005 CO2 emissions were significantly below expectations - meaning that the supply of EUAs in the first phase could be significantly greater than expected. Prices have since recovered, with December 2006 contracts closing at €14.20/t on the European Climate Exchange today.