EU Carbon Permits Drop to Lowest in 16 Weeks as Supplies Rise

European Union carbon permits dropped to the lowest in 16 weeks as supplies of new allowances are set to surge this week compared with last.

Permits for December declined 2.8 percent to close at 6.71 euros ($8.59) a metric ton on the ICE Futures Exchange in London. That’s the lowest since July 30. United Nations Certified Emission Reductions for December advanced 3.7 percent to 85 euro cents a ton.

Supplies sold at auction this week will rise to a record 21 million tons, almost double last week, according to Bloomberg New Energy Finance. Carbon permits fell 17 percent last week, the biggest weekly retreat for almost a year.

Allowances may decrease to a five-year low of 5.50 euros a ton this week, Konrad Hanschmidt, an analyst for New Energy Finance in London, said today in an e-mailed note.

“The EU allowance price slide is likely to continue,” he said. “The market should be concerned about record supply volumes outstretching demand.”

Demand for utility hedging of power sales is below 20 million tons a week, Hanschmidt said.

The EU plan to temporarily remove about 900 million tons of supply in the three years starting next year may boost prices by 2015 to fuel-switching levels, which are currently around 45 euros a ton, he said. Utilities need about double the carbon permits when burning coal instead of cleaner natural gas.

One uncertainty is how the plan will evenly remove supply over 2013 should lawmakers only approve the proposal around August, Hanschmidt said. Such a scenario may cut 300 million tons, or 73 percent, of supply expected for sale in auctions in the final five months of 2013, 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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