It is now accepted wisdom in the energy markets that the constraints on greenhouse gas emissions being imposed on the European power sector will have significant commercial implications for utilities and fuel suppliers alike. The EU Emissions Trading Scheme (ETS) is now moving to cruising speed, and clearer CO2 price signals are emerging for the period 2005–2007. So one of the key risk-management challenges utility analysts now face is understanding what is likely to drive the price of CO2