Bloomberg News

EU Carbon Posts Biggest Weekly Drop After Rescue Plan Rejected

April 19, 2013

European Union carbon permits for December had their biggest-ever weekly decline after lawmakers voted against a plan to ease a supply glut and resuscitate prices in the world’s biggest cap-and-trade emissions market.

The allowances dropped 34 percent this week and closed at 3.16 euros ($4.13) a metric ton on the ICE Futures Europe exchange in London. The contract fell to a record-low 2.46 euros a ton on April 17.

Carbon plunged after the European Parliament voted against a measure that would have allowed the European Commission to temporarily withhold about half a year’s supply of emission allowances through 2015 and reintroduce, or backload, them back to the market at the end of the decade. The rejection may render Europe’s 54 billion-euro greenhouse-gas market “completely toothless,” according to UBS AG analysts.

“We’re going to be in a very low-price environment, and just bounce around 2 or 3 euros from here,” Roger Jones, Mercuria Energy Trading SA’s global head of non-oil trading, said in an interview in Lausanne, Switzerland on April 16, the day of the EU vote. Prices may be capped at about 3.50 euros while the market waits on the next rescue plan, he said.

Carbon prices jumped as much as 12 percent earlier today amid signs the EU Parliament’s opposition to the carbon plan had eased after 12 EU lawmakers requested to alter their voting record. The requests won’t change the assembly’s negative verdict on the draft measure, said Bas Eickhout, a Dutch member of the Greens group in the Parliament.

The vote corrections “suggest that building a pro- backloading majority in a potential future vote may be somewhat less difficult than previously thought,” Itamar Orlandi, an analyst in London for Bloomberg New Energy Finance, said in an e-mailed note.

Uncertain Fate

The bloc’s governments have an option to override the assembly’s verdict. The 27 EU governments made no progress yesterday in talks on a rescue for the bloc’s emissions trading system.

Even in parliament “there are several votes up for grabs and two months of time for proponents and supporters of the backloading to try and muster the majority needed.” Paolo Coghe, an analyst in Paris for Societe Generale SA, said today in an e-mailed research note. “The proposal is not definitively rejected.”

EU carbon prices have slumped 60 percent from a year ago as the euro area’s second recession since 2008 cut industrial demand for permits, exacerbating a surplus. Declines in the cost of allowances erodes the incentive for utilities and factories to stop burning cheaper fossil fuels and invest in carbon- efficient technology.

Opponents of the backloading plan, including the Polish government and the European People’s Party, argued it would raise energy costs and artificially boost prices.

Certified Emissions Reduction credits for December were unchanged at 25 euro cents, taking their weekly drop to 38 percent.

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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