Bidding in the CO2 market

MAY 2011

08-03-01Business people in the energy sector, leading executives in financial and legal corporations, consultants, agents promoting investments, brokers… They all trade and reach agreements on a daily basis in the CO2 market, which is the emission rights market, and therefore also have an unmissable date at Carbon Expo 2011, the leading international fair and conference for the emissions trade. Over three days at Fira de Barcelona, they will be analysing the situation in this sector and selling companies’ rights to emit carbon dioxide into the atmosphere.

How does this market work?

It’s very simple. The system has been in place in the European Union since 2005, and is based on the agreements adopted in the Kyoto Protocol. In order to comply with the established limits for emissions, the EU assigns emission rights to each country, and these in turn distribute them among their industries by means of national assignment plans: more than 1,000 factories in Spain and 12,000 in the EU receive quotas that can be traded.

If a company exceeds its limit and pollutes more than the agreements permit, it can buy emission rights, either directly from other companies or in the CO2 market. However, if it manages to work within the limits and has surplus rights, it can sell them in the market.

Polluting less creates profits

08-03-02The idea of the emissions market is to provide benefits in various areas. For Ismael Romero, the managing director of Barcelona’s Sendeco2 de Barcelona, market, “the system encourages businesses to optimise their production processes, making them more efficient ecologically as well as obtaining financial resources by selling the surplus rights.” That is exactly what has happened in Spain over the last year. The businesses subject to this system polluted 11% less than in 2009, and were therefore able to sell their positive balance of rights, earning a total of 400 million euros.

“It is one of the few positive effects of the economic crisis,” says Romeo. “Thanks to the decrease in activity and the various measures implemented, it will be easier to meet the reduction objectives set by the EU and even surpass them.”

The history of the emissions market suggests that the prices and incentives mechanism has been a success: emissions in the industrial sectors involved have fallen year after year. Three new features will shape the market for the next assignment period of 2013-2020: 50% of the rights assignments will not be free, but will instead be auctioned; the current rights will not expire, i.e. they can be used from 2013 onwards; and the register containing the rights and managing assignments will no longer be national and will be centralised for Europe as a whole.

Carbon Expo, the largest CO2 emissions trade fair

08-03-03This is the second time that Carbon Expo has been held in Barcelona, after the 2009 event. Organised jointly by the International Emissions Trading Association (IETA), the World Bank and Fira Barcelona, the exhibition is the leading annual platform for analysing the current state and the main future challenges facing the emissions trading system.

It will be held between 1 and 3 June. The three days contain nine high level plenary sessions and 26 interactive workshops based around projects for financing clean infrastructures, carbon markets and the state of international negotiations before the next Conference of the Parties of the United Nations Framework Convention on Climate Change, which will take place in Durban in late 2012.