Carbon prices closed at €20.60/tonne last night. With a significant sell off in the dying minutes. This sell off had pushed the power market down as well, and with small liquidity it was not difficult for players to move the market significantly with 5% drops seen in Winter 05 and Summer 06. There is no doubt that this market rose on the back of fear and that same fear is driving carbon and gas prices down and effecting the power market. Many players are looking at the cost of carbon as a 5% overall hit in production as opposed to a 95% opportunity cost. This has started to hit the market as players accept that they will be able to find production cuts to cover the 5%. Carbon is now dictating the pace of play and this is something which players will be very aware of, particularly as it acts in a binary fashion, you either have enough credits or you don't. If players are switching to gas, the need for credits becomes less, and watch the market get hit.