Carbon complexities

The EU ETS adds price complexity to European energy markets and the trend towards pan-European markets means far more complex models will be needed to model carbon risk, writes Bjorn Brochmann

Over the past two decades, European power markets have taken important steps towards a pan-European market. The EU emissions trading scheme (EU ETS), introduced in January 2005, has added a new dimension and established new price correlations between markets.

Further down the road, continued liberalisation within the EU will lead to more uniform and more stable energy pricing. However, this trend might be counteracted by emissions trading, which will tend to increase volatility.

The