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Banks, Pension Funds to Shrink 2013 CO2’s Premium, Barclays Says

March 12, 2012

New lenders in the European Union carbon market including banks and pension funds may narrow the premium of 2013 futures compared with those for 2012, said Barclays Plc. (BARC)

Carbon permit spreads have widened to 6 to 7 percent above the Euribor rate, Trevor Sikorski, an analyst in London for Barclays Capital, said today in an e-mailed research note. “As more new potential lenders enter the market, we expect some of the super contango that is now present along the curve to begin to be unwound,” he said.

The premium was unchanged today at 66 cents a metric ton, which would match its lowest close since Jan. 30, according to data from the ICE Futures Europe exchange in London. A market in contango has future-dated contracts that are more expensive than those closer to expiration.

The premium widened to 83 cents on Feb. 27, the highest level since Oct. 14. Factories, especially those in countries with high levels of sovereign debt, have sold near-dated carbon allowances and bought longer term because that may be a cheaper way to raise finance, Sikorski said.

Banks and other investors are starting to realize that there is little risk of rule changes in the carbon market that would make lending against allowances risky, he said. “Recently there has been a spate of new lenders approaching the market and getting comfortable with the main issue around the trade, which is the bankability of EU allowances between phase two and three,” he said. “Such bankability really carries little risk.”

Phase two of the market ends this year. From next year, factories will continue to get most allowances for free, while most power utilities will need to pay for all their permits, according to the program’s rules.

Carbon allowances for December dropped 2.4 percent today to 7.90 euros a metric ton on ICE as of 3:41 p.m. in London. They earlier fell as low as 7.72 euros, the cheapest since Feb. 14.

To contact the reporter on this story: Mathew Carr in London at

To contact the editor responsible for this story: Stephen Voss at

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