EU CO2 Plunge Reignites Criticism About Market Disclosure

The biggest two-day decline this year for European carbon permits has reignited criticism that the Brussels regulator needs to improve how it releases key information to the market.

Carbon for December fell 10 percent in the two days through July 19 as the European Commission declined to comment on a report by Oslo-based Point Carbon that it was preparing to announce plans to reduce a glut of permits without saying by how much. Jos Delbeke, director-general of climate at the commission, said May 31 that the regulator would temporarily remove some new allowances to be auctioned in the three years starting 2013, fanning speculation it would specify a number.

“The European Commission must get its house in order, and stop issuing or leaking contradictory information, which has such material impacts on the market and diminishes confidence,” Mark Meyrick, head of carbon at the trading unit of Dutch utility Eneco Holding NV in Rotterdam, said July 18 by e-mail. “It is profoundly damaging, and unless we see some strong leadership very soon from the commission, this market will implode.”

Carbon permits jumped 30 percent last month on speculation the commission would address the surplus. They had fallen to a four-year low on April 4 of 5.99 euros ($7.25) a metric ton on the ICE Futures Europe exchange in London and traded at 7.21 euros as of 3:34 p.m. today.

Unprecedented Supply

The bloc is seeking to curb an unprecedented supply of permits that is cutting the incentive companies have to reduce greenhouse gases linked to climate change. Carbon emitted from cars, power stations and factories will need to be reduced by an average of 6 percent a year to stabilize the Earth’s climate by the end of the century, the U.S. National Aeronautics and Space Administration said in April.

Point Carbon didn’t specify the source of its information when reporting July 18 the regulator’s plan to support prices won’t contain the number of allowances to be withheld. Isaac Valero-Ladron, a spokesman for the climate unit of the commission in Brussels, didn’t return three phone calls, two e- mails and a text message from Bloomberg seeking comment.

The commission will release some details of its proposal tomorrow at noon Brussels time, the regulator said today in a statement on its website.

Internal opposition within the regulator to the plan was “undercommunicated” last month, Matthew Gray, an analyst at Jefferies Bache Ltd. in London, said in a July 19 note. Price movements have been “fueled by leaked information and conflicting messages from politicians.”

‘Clarification Needed’

The commission would propose by about the middle of this month “a proposal to postpone the bringing to the market of a number of allowances for auctioning,” Delbeke said May 31 at the Carbon Expo conference in Cologne, Germany.

The commission may not succeed in its bid to temporarily cut supply, said Louis Redshaw, head of emissions trading at Barclays Plc in London. That plan is known as back-loading supply.

“They need to urgently clarify what’s going on,” Redshaw said July 18 by phone. “We’ve heard the commission saying forcefully ‘this is what we are going to do.’ Now there’s doubt whether they will ever achieve their back-loading plan.”

Regulatory officials need to be more careful not to give out market-sensitive information while the EU’s plan is being negotiated and remains under wraps, Meyrick at Eneco said.

“Given the delicate state of negotiations within the commission, this is an appalling piece of information management,” he said. Sources of leaks should be found and disciplinary action taken, 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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