crash in the European Union's Emissions Trading SystemQuoteA year ago, CO2 was changing hands in the ETS at 30 euros a tonne, triple that at the market's launch in January 2005.Today, a tonne of CO2 can be bought for little more than one euro.anyone lucky enough to make money out of this debacle?

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.

From the Economist:QuoteIn order to get industry to swallow this scheme, allowances were handed out free to companies, rather than being (as economists wanted) auctioned. In power-generation (Europe’s most-polluting industry) companies passed the price of carbon credits on to customers and pocketed the value of the allowances. According to a report by IPA Energy Consulting, Britain’s power-generators alone made a profit of around £800m ($1.5 billion) from the scheme in its first year.

I recall reading about the idea of "pollution units" issued by the EPA in either a Scientific American or Physics Today article in 1989. Shows you how long it takes for an idea to gestate, how poor the performance of political leaders in addressing the issue, and how far behind the US has fallen.About 4 years ago one of the European banks set up an environmental finance desk headed by a former Greenpeace activist. A couple of years later the desk dissolved. Yesterday Bloomberg carried a news story on how derivatives professionals are breaking into senior management roles in investment banking (why that should be surprising is itself a surprise). With due apologies to Milton Friedman, some of these managers are probably scientifically trained, and have some understanding and sense of responsibility. When interests converge, good things can happen - banking getting closer to science and scientific responsibilities cannot hurt. In parallel, who knows, maybe in 50 years or so, more political leaders will come from a scientific background than they do now. At moment, there is still a mixing of the ultra left with scientific concerns - and hence scientists tend either to be Greenpeace type activists or rather conservative - the boys with toys types. There is not much in between. Most of the scientific debates about public policy seem to orginate from very far ends of the political spectrum. It is early days still. Curious to know how accurate monitoring of emissions is - anyone?

QuoteOriginally posted by: ppaupercrash in the European Union's Emissions Trading SystemQuoteA year ago, CO2 was changing hands in the ETS at 30 euros a tonne, triple that at the market's launch in January 2005.Today, a tonne of CO2 can be bought for little more than one euro.anyone lucky enough to make money out of this debacle?I sure some of the European utilities are happy enough with this outcome!