The European Union will probably sell about 197 million metric tons of carbon allowances in the first two months of next year, even as it seeks to complete details of a supply-glut fix, said Bloomberg New Energy Finance.
That volume will “almost certainly” be sold in auctions over that period while the bloc seeks to complete details of its plan to temporarily delay supply, James Cooper, an analyst in London for New Energy Finance, said today in an e-mailed response to questions.
“How the market reacts to this volume will depend on the outcome of the potential Climate Change Committee vote in December,” Cooper said. “If the CCC passes the backloading measure, the market could react favorably to the auctioning volume in an effort to buy up the market in anticipation of depleted auction volumes later in the year.”
The European Union’s Climate Change Committee includes representatives of all 27 member states.
EU carbon for December, the industry benchmark, has dropped 22 percent in the past year, as low economic growth curbed demand because of muted industrial output. Supplies of United Nations offset credits advanced, adding to a glut. The bloc is already planning to sell 150 million tons of Phase 3 allowances by the end of this year, according to its website. That phase begins next year and ends in 2020.
With about 71 business days between today and the end of February, supplies will average 4.9 million tons a day, before accounting for additional volume left over from reserves for new-entrant factories and power stations for the five years through 2012, according to a Bloomberg calculation. That compares with a daily average in September of 1.1 million tons.
The committee may not vote until the second quarter of 2013 on the plan to temporarily delay sales, Deutsche Bank said today in an e-mailed research note.
“There is still a chance that the all-important Climate Change Committee vote on the volumes to be back-end loaded could happen by the end of this year, although the risk is that this will not now happen until the second quarter of next year,” Isabelle Curien, an analyst with Deutsche Bank in Paris, said in the note.
Prompt EU carbon prices will probably remain in a range from 6 euros ($7.83) a metric ton to 8 euros and there is a chance carbon could rise to 10 euros by the end of the year should the European Commission propose to delay at least 900 million tons, Curien said. EU carbon for December rose 1 percent today to 8.16 euros a ton on the ICE Futures Europe exchange in London at 11:34 a.m.
“Even if the CCC does vote to support backloading in December, it would be a risky move for them to scale back auctions and effectively begin backloading in January,” New Energy Finance’s Cooper said.
A regulatory process involving member states, the parliament and the commission was put in place to gain legal backing via an amendment to law, Cooper said.
“The commission may be eager to push backloading through, but to deliberately ignore the process they have followed thus far would be politically contentious, hence why we see it as almost certain the volumes at the start of the year won’t be reduced,” he said.
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