The Financial Times reported here (posted online 2005-11-17, in print edition 2005-11-18, subscription may be required) that wholesale gas prices have risen dramatically in Britain:

“Wholesale gas prices have almost doubled in the past week, with the cold snap stoking fears about Britain’s gas supply this winter.

Gas for delivery the next day touched 80p a therm yesterday – up from about 43p a week ago – before dropping back slightly. It was the highest price in eight months.”

What is the reason for mentioning this on a site devoted to Carbon trading? Well, as gas prices rise, electricity generators with a choice of fuels are likely to be more inclined to use coal. Coal emits more CO₂ than does gas, so power generators using more coal than otherwise should lead to increased carbon emissions, and hence increases in the demand for Carbon Emission Rights. In other words, higher gas prices could translate into CER prices.

Of course, economists who believe that traders are fully rational would say that the CER prices should already reflect anticipations of a colder-than-usual winter. But Carbon Emissions Trading is still new, traders are still feeling their way, and many of the companies who will eventually trade CERs have yet to do so.

References:
Thomas Catan: “Cold snap prompts surge in gas price.” Financial Times Online, 2005-11-17, 21:23

This entry was posted on November 18th, 2005 at 18:27 (GMT) and is filed under Forecasting & Modelling, Policy, UK Energy Policy . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.