EU Carbon Has Biggest Three-Day Drop Since 2006 on Bidding Ratio

European Union carbon permits had their biggest three-day drop since April 2006, extending losses after there was a lower bidding ratio in a sale today than in the previous four auctions.

There were bids for 4.96 million tons of carbon permits in the EU auction on the European Energy Exchange AG, 1.2 times the volume for sale, according to data from the bourse. The previous ratio was 1.73 times, while the first sale by Germany on Oct. 26 had a ratio of 7.67 times.

EU carbon permits for December dropped as much as 11 percent to 7.06 euros ($9.03) a metric ton on the ICE Futures Europe exchange in London. They were at 7.24 euros at 4:21 p.m. in London, taking their three-day decrease to 20 percent.

The bloc is boosting sales of allowances for 2013 even as it seeks to fix a glut that may rise to about 2 billion tons by the end of the decade, as low levels of economic production sap demand, the European Commission said yesterday in a report. It proposed Nov. 12 to temporarily reduce supply starting next year to boost prices and encourage clean-energy investments.

“The ongoing low EU allowance price is indicating a diluted cap and excessive supply,” said Miles Austin, executive director of the Climate Markets and Investment Association in London. “This is what the European Commission needs to address, not the price at which EU allowances are trading, which is a symptom not a cause,” Austin said today by e-mail.

In today’s auction of spot allowances that can be used for the third phase beginning next year, the EU sold at 7.30 euros a ton, 3.6 percent below the prevailing market price for spot Phase 2 allowances, according to data from EEX and the BlueNext SA exchange in Paris.

Bidding Rules

Should bids at future auctions fall below the volume being offered, the EEX will cancel the sale, according to regulations governing the process. Further, where the clearing price is “significantly under the price on the secondary market,” the auction will be called off, according to the rules.

Euro-area industrial production dropped the most in more than three years in September, led by double-digit declines in Portugal and Ireland, the EU’s statistics office in Luxembourg said yesterday.

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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