producer in a geographic area where coal is currently the preferred method by which electricity is generated may eventually encounter a negative climate spread if carbon credit prices rise. This would mean that when taking into consideration the cost to produce plus the cost of compliance with a cap and trade (coal is on average 2.5 times as polluting as natural gas for the same output of electricity), natural gas would be a better decision. This would begin to cause more internal abatement via power generation fuel switching and less reliance on flexible mechanisms. This is important due to concerns regarding supplementarity. Climate spread is also interesting in that it is the fundamental driver for the price of carbon credits. Since the ETS cap-and-trade system covers the major polluting industries, power generation by coal- and gas-fired power plants, by far the largest power sources, create the most carbon credit demand within the ETS. To cover emissions on an ever-tightening ration of free EUA allowances, a coal-fired powered power plant will either have to abate internally or buy credits. If the price of marginal internal abatement is lower than the price of carbon credits, the firm will choose internal abatement. However marginal abatement becomes more and more expensive, at some point forcing the plant to buy credits – thus the carbon credit price is equal to the marginal cost of abatement to the extent that European power plants have chosen to abate. Clean Dark Spreads are a reflection of the cost of generating power from coal after taking into account fuel (coal) and carbon allowance costs. A positive spread effectively means that it is profitable to generate electricity on a Baseload basis for the period in question, while a negative spread means that generation would be a loss-making activity. The Clean Spark Spreads do not take into account additional generating charges (beyond fuel and carbon), such as operational costs. Both the UK and German Dark Spread tables use a fuel efficiency factor of 35% for the coal conversion, and an energy conversion factor of 7.1 for converting tonnes/coal into MWh/electricity. In reality, each type of coal has a different energy value and each coal-fired plant has a different fuel efficiency, but 35% is accepted as a broad standard. At the time of writing (March 2007) there is no liquid Dark Spread traded market in either the UK or Germany. The Dark