European Union carbon permits surged to their highest price in almost two years after Germany said it will halt its seven oldest nuclear reactors, increasing demand for replacement power from fossil fuels.
EU permits for December jumped 3.7 percent to 17.21 euros ($24.08) a metric ton on the ICE Futures Europe exchange in London, the highest close since May 2009. They traded earlier as high as 17.49 euros, and volumes aggregated across all futures surged to an all-time high of 51.6 million tons on the ICE, making it the busiest day ever for carbon trading.
German Chancellor Angela Merkel’s decision today to suspend the plants for safety checks following concerns about a meltdown in Japan may remove 4.9 gigawatts of capacity from the power market, said Emmanuel Fages, a Paris-based analyst at Orbeo. Permanent closures would push up emissions by 270 million tons through 2020, the equivalent of 13 percent of this year’s total cap, as utilities rely more on electricity from coal, oil and gas, Fages said today by e-mail.
“Today we are witnessing a perfect storm for the EU emissions trading system,” said Matthew Cowie, an analyst at Bloomberg New Energy Finance in London. During the next few months, “we have high natural-gas prices and the probable closure of older German nuclear plants,” he said. Europe may have less nuclear output during the next few years and continued high gas prices, which would force utilities to burn coal and drive carbon prices “sharply” higher, Cowie said.
German power for 2012 rose as much as 4.6 percent today to 58.50 euros a megawatt hour, the highest intraday price since October 2009, broker data compiled by Bloomberg show. U.K. gas for delivery in the six months starting April 1, the summer contract, increased as much as 3.4 percent today on ICE.
The surge in carbon permits in the past two sessions may be “overdone” considering the oversupply of 515 million allowances for the five years through 2012, not counting United Nations offsets, according to Barclays Plc.
“What has happened to put 2 euros a ton on the price?” Trevor Sikorski, a London-based analyst at Barclays Capital, said today by e-mail. “Japan will take some more liquefied natural gas and Germany has closed some nukes.”
Before today’s surge in carbon prices, the EU proposed selling 120 million permits at early auctions next year to limit price shocks as it phases out distribution of free allowances. The price fell as much as 0.5 percent after that announcement.
The proposed volume would come on top of the 300 million allowances from an EU reserve, designed to spur clean-energy projects, scheduled to be sold in 2012 in advance of the next eight-year trading period known as phase three. The total of 420 million permits to be sold early corresponds to 21 percent of average annual supply in the current phase, which began in 2008.
The EU proposal for 120 million allowances is 45 percent more than the 83 million-ton-average forecast from three analysts surveyed by Bloomberg News.
“The 120 million tons looks optimistic,” Sikorski said, earlier today. “It certainly helps mitigate some of the tightness in the market, but the market will still need to rise to meet the future level of hedges.”
EU permits for December may rise to 18.14 euros a metric ton within the next few weeks, according to Brett Genus, a broker at OTC Europe LLP in London. He cited Elliott Wave theory and trading volumes.
Elliott Wave theory says that the price rises in a series of five swings and falls in a series of three, based on rhythms found in nature. December carbon volumes jumped 88 percent today to a record 38.5 million tons on ICE.
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