ParisBourse SBF SA Announces Encouraging Results For Trading Simulations Of CO2 Emission Permit And Electricity

Simulations of organized markets in CO2 emission permits and electricity were conducted from May 18 to July 13 this year under the aegis of ParisBourse SBF SA, the International Energy Agency and Uniped/Eurelectricity, the association of European electricity producers and distributors. The highly encouraging results were presented on October 26 in connection with the Bonn Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC), which will be attended by delegates from 160 countries. Order-matching through an electronic market proved an effective vector for the price information flows essential to strategies for the reduction of CO2 emissions. These concern in particular imports and exports of electricity, optimization of production sites, investment policies and related acquisition and sales of emission permits. The simulations covered the period from 2001 to 2012, with eight trading sessions taking into account two periods for CO2 emission reduction - 2% from 2005 to 2007, and 5% from 2008 to 2012. Nineteen electricity producers in 14 countries, represented by 16 virtual companies, adapted quickly to the market and use of the trading system developed by ParisBourse SBF SA. Market depth and relatively narrow bid/ask spreads made for excellent liquidity for all products - spot electricity and CO2 permits, and CO2 permit futures with 2007 and 2012 deliveries. Detailed analysis of simulation results provides a large number of useful lessons concerning the efficiency of a market for CO2 emission permits pursuant to the Kyoto protocol. Further simulations will be required to confirm initial results as well as to identify and test appropriate rules for an emission permit market before the sixth Conference of the Parties in November 2000.