The European Union’s carbon dioxide emissions during 2007 rose around 1.1% compared to the year before. Emissions by over 10,000 European companies who are mandated to offset pollution once they exceed industry limits, reached around 1.914 billion metric tons. Data released Wednesday suggests that 93% of the heavy industry companies had submitted their pollution numbers.

The data is of key importance for the secondary market in the European Union Allowance (EUA) permits, which are traded on the European Climate Exchange (ECE). Traders take guidance from the real level of carbon emissions to gauge what demand for future offsets is likely to be. The news sparked a rally on the ECE wednesday. The European Union Allowances (EUAs) futures rose 88 cents, a 3.9% rise.

Industrial companies registered on the European Trading System (ETS), must purchase a permit for every tonne of carbon they emit above the legally set limit for their industry. They can buy ‘clean air’ permits of companies that created less pollution than their legally allowed limit.

The 2007 EU CO2 emissions data introduces the second phase of the European Trading Scheme. During the first phase of the program the carbon offsets price collapsed in mid 2006 due to vast over supplies of emissions permits. The current ’spot’ or immediate market is still not recovering. Prices of one tonne of CO2 hover at little more than zero cents. Traders expect this to drastically turn around in the next few months because the market will be re-launched on the basis of different parameters.

Environmentalists criticized the ETS when the 2007 CO2 numbers were released, saying that emissions haven’t fallen, but actually saw increases in the last three years. They doubt that the scheme will help the EU to reach Kyoto Protocol levels (an 8% reduction of CO2 emissions by 2012). The environmental organization Greenpeace slagged off the data, saying it showed Europe was lagging far behind on its Kyoto target. “From the numbers, it looks like emissions are going up and that proves that the ETS does not work, it means we are not protecting the climate,” a Greenpeace spokeswoman was quoted as saying by Reuters.

Point Carbon, a Norwegian based environmentalist research house, said that the 2007 data released showed that only a few countries exceeded their national emissions allocations. Industries involved on the ETS include power generators, iron, steel, glass cement and aluminum, who if they fail to reduce CO2 levels are mandated to buy permits to emit carbon on the open market. Plans are to include the aviation sector in 2011. The industries which caused excessive CO2 emissions were power generators in the UK, Italy and Spain.

As could be expected, traders are overly positive about the prospects of really reducing carbon emissions by means of market based carbon trading. The facts will speak for themselves over time. The EU has made important moves to redress its mistakes. It has balanced out its capping mechanism. The European Commission cut limits on CO2 allowances by 10% last October in an effort to boost the fledgling EUA market by decreasing supply of permits. It is expected that the price of one tonne of carbon should rise to around €23 to €35 in the second phase of the ETS program (2008-2012). Deutsche Bank released a report recently which is especially optimistic.

Angelique van Engelen writes http://amplifiedgreen.wordpress.com , a blog about micro green issues, macro perspectives.