Bloomberg News

Carbon Drops Most in Four Weeks as EU Panel Passes Weakened Fix

June 19, 2013

European Union carbon permits fell the most in four weeks as the European Parliament’s environment committee approved a weakened proposal to reduce a surplus of emissions allowances.

The December futures contract lost 6.9 percent to close at 4.39 euros ($5.88) a metric ton on London’s ICE Futures Europe exchange, the biggest decline since May 22. Earlier the contract fell as much as 7.2 percent to 4.36 euros a ton.

The Parliament’s environment panel approved amendments to a proposal by the European Commission to delay the sale of as many as 900 million permits to trim a glut that’s swelled to about 2 billion tons in 2012, almost equal to the EU’s annual limit. Prices rose for six out of the last seven weeks as traders bet the proposal would be passed.

“This compromise is basically quite toothless,” because the supply of permits will be returned to the market straight after being withdrawn, said Patrick Hummel, an analyst for UBS AG in Zurich. “Carbon had a good run into today’s event” and the outlook for prices is “weak,” he said today by phone.

The amount of outstanding futures contracts, or open interest, for December dropped 1.9 percent to 595 million tons yesterday in the biggest decline since Nov. 15, according to ICE Futures Europe data. Open interest for the December 2015 contract increased by the most ever yesterday, rising 5.7 percent to 188 million tons.

The decline in December open interest figure may have reflected traders selling before the EU panel’s vote today, Milan Hudak, an analyst at Virtuse Energy sro in Prague, said by e-mail.

Member States

The amendment, passed by 38 votes to 27, means “the odds for passage in the plenary are higher than they were on April 16 when backloading was rejected,” Itamar Orlandi, an analyst in London at Bloomberg New Energy Finance, said today by e-mail. “The market will now increasingly look for indications whether member states will also be willing to support the compromise.”

Europe’s emissions trading system imposes caps on power plants and factories, which must surrender allowances to cover their discharges of carbon dioxide or pay fines. The pollution limits were set before the euro area’s second recession since 2008 cut industrial demand for the permits, exacerbating a surplus that helped push prices to an all-time low.

To contact the reporter on this story: Alessandro Vitelli in London at avitelli1@bloomberg.net

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


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