Carbon market prices

Under the European Union Emissions Trading System (EU ETS) businesses which produce significant carbon emissions such as power stations, manufacturing and industrial plants must pay for the carbon emissions they produce. This is achieved by buying carbon allowances - 1 allowance means the owner can emit 1 tonne of CO2.

Under the 'cap and trade' model which defines the market, all businesses covered by the scheme are given a total amount of allowances - which they must trade these among themselves in order to define a value for their carbon emissions. This means that producers of carbon emissions then have to make a choice as to whether they buy enough allowances to cover the carbon produced by their operations, or reduce the amount of carbon they emit if they cannot but enough allowances.