Interesting! This looks like a "good thing" to me -- it used a market mechanism to bring visibility onto what is usually the opaque politically-driven process of allocating pollution credits. In retrospect, its unsurprising that emitters would game the bureaucrats into giving them higher-than-needed quotas. In retrospect, its not surprising that those generous carbon credits should be worth less than expected as the market was flooded by excess carbon credits. I'd say the emitters that hoped for a windfall probably didn't get the gains they hoped for. I'd say the market functioned very well in mediating a transition from a flawed government-allocated system to a market-allocated approach.I'm sure that prices for emissions credits will continue to gyrate over a very wide range -- the credit is essentially an option against the 100 euros a tonne penalties for over-emission. If EU companies become more carbon-efficient, decline during an economic slump, or move emissions overseas, then these CO2 credits will go OTM and the price will drop dramatically. Anyone who thinks that stable prices are a measure of success, doesn't understand markets in instruments that have non-linear payoffs.As to making money, I'd bet there are some people that are mangling Black-Scholes with models of macroeconomic volatility and efficiency trend projections to create better credit pricing models.
Last edited by Traden4Alpha
on February 15th, 2007, 11:00 pm, edited 1 time in total.