The prices of EU carbon emission allowances (EUAs) have risen higher over the New Year following a jump in world oil prices, although settling back as oil ended its latest run.

The benchmark December 2008 futures contract closed at €23.11 per tonne of CO2 on the European Climate Exchange on Friday January 11, up 70 cents in the new year and on levels a month ago. Dec 09s closed at €23.63 and Dec 10s at €24.71.

This rise in carbon prices can largely be sheeted home to the latest jump in the oil price, which breached $US100 a barrel over the New Year. As oil settled back below the $100 mark last week, so carbon eased off from benchmark levels approaching €24.

Gas prices follow oil closely and a rise in gas sees power utilities using more coal instead. Burning coal produces more CO2 emissions than gas, requiring generators to buy more emission allowances to cover their power generation.

EU carbon prices still remain broadly in the trading range of the last quarter of 2007 led by the Dec 08 contract which has traded in the €21.50 to €23.50 range.

Growth in carbon trading volumes on the ECX reflects the wider market with average trade in futures contracts averaging 4 million tonnes a day in December compared to just over 2 million tonnes at the end of 2006. The wider market includes other electronic exchanges such as EEX, Nord Pool and Powernext and the bilateral or over-the-counter trade where EUA sales are negotiated through brokers. Prices in the brokered market and across the exchanges track each other closely.

The secondary CER market in Europe continues to see prices follow the ups and downs of EUAs but with movements less pronounced. Issued CERs for Dec 08 delivery closed at €17.30 January 11, 75 per cent of the corresponding EUA contract, a discount of €5.80.

CERs can be used in place of EUAs in the EU ETS and although cheaper are also subject to trade and delivery question marks as market players await the connection of the EU emissions registry to the International Transaction Log, not expected until later this year.