Bloomberg News

RWE Boosts 2012 Emissions Trading as Free Permit Allocation Ends

March 05, 2013

RWE AG (RWE), Germany’s second-biggest utility, boosted carbon trading by 65 percent in 2012 before the European Union halted free allocations of emission allowances this year.

RWE traded 1.06 billion metric tons of carbon permits in 2012, compared with 644 million tons the previous year, company spokesman Michael Murphy on Essen said in an e-mail today. Starting this year, west European power generators must buy all of their emission permits until at least 2020, after getting most of their allowances for free over the past five years.

“The shift from partial free allocation of allowances to full auctioning for Western utilities is likely to mean increased carbon trading activity for most power companies,” said Itamar Orlandi, a carbon markets analyst at Bloomberg New Energy Finance in London. “We expect a further, although less pronounced, increase of trading volumes over 2013.”

RWE emitted 197.8 million tons of carbon dioxide in 2012, according to its annual report published today. That’s 11 percent more than in 2011 and the highest amount since 2007, according to data from RWE’s previous annual reports.

The utility is unlikely to repeat last year’s jump in carbon trading, according to Anett Urbaczka, a spokeswoman for RWE in Essen. “2012 was an exception with regards to emissions,” she said, without providing details.

Carbon Plunge

The EU started its emissions trading system in 2005 to help meet greenhouse gas-reduction targets under the 1997 Kyoto Protocol. The program auctions or allocates for free allowances to factories and utilities, which must surrender enough permits to cover their discharges of carbon dioxide or face fines.

Carbon prices have plunged 52 percent in the past year as Europe’s weak economy damped industrial demand for permits. December EU permits fell to a record 2.81 euros ($3.65) a ton on Jan. 24, and were at 4.50 euros on ICE Futures Europe exchange at 3:15 p.m. in London.

Declining power prices in Europe’s biggest economy, combined with the slump in emission permits and weak demand for coal worldwide has made dirtier coal-fired plants more profitable to run relative to gas-powered facilities.

In Germany, gas-fired plants are making a loss of 17.87 euros a megawatt-hour based on power, gas and emissions prices for next month. Coal plants are earning 7.57 euros a megawatt- hour as of 2:30 p.m. in Berlin.

RWE’s trading in gas last year dropped 46% to 4,393 terawatt-hours from 8,132 terawatt hours in 2011.

German year-ahead electricity, the European benchmark for power pricing, has fallen 21 percent in the past year, according to broker data compiled by Bloomberg.

To contact the reporters on this story: Julia Mengewein in Frankfurt at jmengewein@bloomberg.net; 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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