Bloomberg News

Any EU Carbon Price Jump May Be Short-Lived, New Energy Says

October 29, 2012

Any jump in the price of European Union carbon permits next month may be short-lived because of sales that may begin on about Nov. 20, boosting supply, according to Bloomberg New Energy Finance.

European Energy Exchange AG in Leipzig, Germany, may seek to sell 84 million metric tons of allowances in about 10 auctions starting that date and finishing by the end of the year, with supply at each auction exceeding the total in all of this month, Konrad Hanschmidt, an analyst at the London research company, said today in an e-mailed research note. Fanfare about the auctions “may turn into alarm bells,” he said.

The auctions will probably follow a recommendation by the European Commission expected on Nov. 14 on how many allowances the bloc will withhold temporarily, he said. That supply reduction probably won’t start until 2014, about 13 months later, he said.

Phase 3 of the bloc’s carbon trading system, the world’s biggest greenhouse gas market by traded volume, begins next year and runs through 2020. The commission is selling some carbon early to fill hedging demand from power utilities, which sell electricity about one or two years ahead of generation.

EU carbon permits for December rose 1.5 percent today to 8.01 euros a metric ton on the ICE Futures Europe exchange in London at 4:49 p.m. They’ve fallen 27 percent in the past year.

The market will be oversupplied by about 260 million tons next year, “requiring a significant amount of speculative buying to keep EU allowances from falling to new lows,” Hanschmidt said.

‘Not Helpful’

Deutsche Bank AG forecast Oct. 26 that supply of carbon, excluding standard Phase 3 sales, would reach as high as 260 million tons through March. Including the standard sales of about 20 million tons a week, supplies would surge to a total 540 million tons in the period.

“Supply may weigh on EU allowance prices,” Isabelle Curien, an analyst for Deutsche Bank in Paris, said that day in an e-mailed research note.

EEX has not yet published a timetable for standard sales starting in January.

“This uncertainty is not helpful at all,” Gunnar Steck, chairman of the emissions-trading task force of the European Federation Energy Traders, said Oct. 26 by e-mail.

While the lobby group’s members don’t discuss power hedging strategies within the group, EFET was assuming supply would arrive consistently as it expects while the European Commission in Brussels finishes its plan to fix the supply glut, said Steck, who is also a business and regulatory affairs executive for EON AG in Dusseldorf, Germany.

“There must be an even spread of the total EU allowance Phase 3 volumes,” he said.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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