Picture the morning of May 15th it is 7.00am and traders have recovered from their weekends, and stumble into work so that they can read the press relaease on the compliance position of the EU ETS for 2005 on the Community Transaction Log. Their first glance is at the numbers for Italy, Germany and the UK, these three are big emitters and the whilst it would be useful to add Poland to the list they know that the information will not be available because the Poles do not have an operating registry. They discover that the Germans are in fact short of allowance to the tune of 10 million tonnes, and that the Uk are also short to the tune of 5 million. They will then scan further information totting up quickly the overall EU ETS position and they will be looking for a number somewhere in the region of 60 million (incl a best guess for Poland) if the system is 60 million short then the price of emissions will tend to €25, the recent collapse will have been massively overstated and power and gas prices will rise rapidly. First mover advantage helps here but if you come to the market at 8am you will have missed the boat. Furthermore, players may well be fearful of putting offers out in the market knowing that new levels will have to be calculated and everyones model will be different.

If the market shows that the EU ETS is 60 million long, then the emissions price is tending towards zero, with it power and gas prices will collapse and open £5-£10 lower as a starting point, many traders will be careful to get out of risky positions and the longs will sell aggressively, the buyers seeing a price bonanza will return, with new price levels being smashed breaking previous support levels. At this point, some players will look to buy significant volume to support the price, sellers may well be keen to see this as the unload their losses at the best price they can get.