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Carbon and commodities

Much like other commodities, carbon dioxide emission allowances and credits have been enjoying a rally and have not escaped the magnetic power of oil.

EU could shut the window on the carbon market

Will investors clean up?

Banks warm to green products "The carbon price today is moving in sympathy with oil," says Emmanuel Fages, carbon markets analyst at Société Générale. "To a large extent this is simply because the market sees EUAs and CERs as part of the energy complex, so if energy prices go up, CO2 goes up with it. The relationship is based on the fact that when oil rises, gas also becomes more expensive. This increases the relative competitiveness of coal, the price for which is not linked to oil. When coal becomes relatively cheap, electricity producers burn more coal rather than gas, which greatly increases CO2 emissions and hence the demand for allowances."

Although the price of carbon is having an impact on decisions about the types of new power plants being built, it is still too low to induce a switch from coal to gas in existing generation fleets.

As in the case of oil, slowing economic growth is Europe is unlikely to have much of an impact on the carbon price. "An economic slowdown has really been just a second-order effect," explains Fages.

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