There is a danger that the carbon price can become self-propelling upward. Let us say that gas prices rise because of supply shortages, it is assumed that players will burn more coal as gas becomes more marginal. Therefore traders buy carbon, which in turn pushes the power price up for two reasons, both gas and carbon have risen. The rise in the power price is double that of the gas price rise and so the spark spread rises, players seeing this try to sell the spark spread and so buy gas and sell power, they may well leg into the spread as the gas market tends to be more liquid. This pushes the gas price up again and we are back at the beginning!

Certainly this is where some correlation is good and bad, and it was the cause for the inexorable rise in carbon last year. But in a world market where the correlation between Norwegian Gas and German gas is reasonable strong, we also know that the further down the supply chain the smaller the correlation and they will all be trading carbon. So the world market is worth encouraging if only to look at smaller less volatile carbon markets.