EU: Electricity companies trial online CO2 permit “trading game”

UNIPEDE/EURELECTRIC, the twin associations representing European producers and distributors of electricity, have just concluded a novel exercise designed to simulate electronic trading of "CO2 emissions permits" linked to the electricity market.

The “trading game” was run in conjunction with the Paris Stock Exchange and the International Energy Agency (IEA) between 18 May and 6 July. Its purpose was to explore how a market in tradeable certificates based on permits to emit quantities of carbon dioxide could function efficiently, enabling companies to reduce their overall emissions and help fulfil obligations under the Kyoto Protocol on climate change. Eighteen “virtual” electricity generating companies from fifteen countries and a “virtual” trader simulated several years of activity, one week representing a year’s business.

The goal of the trading game was for the participating “virtual companies” to deal on the market in both electricity and emissions permits in such a way as to meet targets for emissions reductions. The International Energy Agency (IEA) and ParisBourse SBF SA (the company that runs the Paris Stock Exchange) were tasked to work out the rules of the game.

A screen-based market, accessible via the Internet, was created by ParisBourse, using a special server that allows the players to confront supply and demand for both electricity and emissions permits in real time. The IEA and UNIPEDE/EURELECTRIC will now undertake a full analysis of results and lessons to be learned.

According to UNIPEDE, preliminary indications – within the limited scope of the game – suggest that this kind of market may have some role to play in helping companies to plan their electricity and emissions trading activities in a way which cuts overall CO2 emissions and encourages them to implement technology changes.

For this first exercise, the scope of the game was deliberately limited to the electric power sector in Europe. To investigate the full potential of emissions trading in a wider market, the participants are now considering running a second game towards the end of the year, involving a greater number of virtual enterprises from different industrial sectors.

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