Europeans increasingly suffer discomfort from gas. They lack the natural variety and are bloated with carbon dioxide. The European Union’s emissions trading system (ETS), now a year old, has made little headway in relieving the latter problem.

Power plants emit 61 per cent of all CO2 covered by the ETS. Rising emissions costs should force generators to switch from carbon-heavy coal-fired capacity to gas. Soaring gas prices and low rainfall in southern Europe – reducing hydro-power capacity – have mitigated against this. Outside the UK there is little spare gas-fired capacity to switch into. Building it within the time-frame of the ETS’s first phase, which runs from 2005-07, is infeasible. Dresdner Kleinwort Wasserstein thinks that, after recent inactivity, the annual emissions cuts required for 2006 and 2007 have risen from 59m tonnes to 76m tonnes. Permit prices, now €23 a tonne, could rise to €35 or more.