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EU Carbon Permits Plunge to Record After Germany Cancels Sale

European Union emission permits plunged to a record after low bids from utilities, factories and banks forced Germany to cancel a sale for the first time.

EU carbon for December dropped 8.9 percent after the European Energy Exchange AG failed to generate higher bids even after extending the sale by 15 minutes. The unsold volume will be added to the country’s next four auctions.

The contract has fallen 23 percent this month as EU member states consider whether to approve a European Commission plan to temporarily fix a record glut in supply. Unsold volumes could exacerbate the market’s oversupply in subsequent sales, according to Bloomberg New Energy Finance.

“Demand from utilities just isn’t there,” Matthew Gray, an analyst in London at Jefferies Group Inc., said in a phone interview. “It’s a concern how quickly it’s happening. I didn’t think we’d see an auction fail this soon in the year.”

The benchmark future dropped 50 cents to close at a record 5.11 euros ($6.80) a metric ton on the ICE Futures Europe exchange in London.

Soon after 11 a.m. Berlin time EEX, in Leipzig, Germany, extended the auction by 15 minutes after bids for the 4 million tons of carbon allowances offered didn’t meet the sale’s minimum price, the exchange said by e-mail.

News of the extension sent carbon permits lower and didn’t result in a successful sale. EEX later canceled the auction, citing bidding “significantly” below prevailing market prices.

The exchange didn’t disclose the EU’s so-called reference price and said the unsold volume would be offloaded in the next four auctions by Germany planned for Friday each week.

‘Wake Up’

The cancellation is a “wake-up call” for those who do not support the plan to strengthen the emissions trading system, Connie Hedegaard, the EU’s climate chief said on her Twitter Inc. account. The need to fix the market is getting urgent, she said.

Consecutive cancellations of auctions by EU nations selling in a combined program could boost supply at subsequent sales “dramatically,” Konrad Hanschmidt, a Bloomberg New Energy Finance analyst in London, said today in an e-mailed report, citing the market’s rules.

European nations started a program of almost-daily carbon sales last week, after giving almost all permits away for free in the eight years through 2012. Average volume this year will be 14.6 million tons a week, according to data from exchanges handling the sales compiled by Bloomberg.

The price of permits, needed by factories and power stations that burn coal and natural gas, dropped earlier this week after German Chancellor Angela Merkel’s government on Jan. 16 cut its growth forecast as austerity policies in euro-region countries damp exports.

‘A Joke’

German gross domestic product growth will slow to 0.4 percent this year from 0.7 percent in 2012, the Economy Ministry said in its annual report.

The EU greenhouse gas trading system should be replaced with a carbon tax if the bloc fails to repair a system that’s “a joke the whole world laughs about,” Johannes Teyssen, chief executive officer of EON SE, Germany’s biggest power utility, said in an interview with Manager Magazin published yesterday.

A lobby group representing traders from Royal Dutch Shell Plc (RDSA) to BNP Paribas SA on Jan. 16 criticized the quality of disclosure by the European Commission in Brussels when proposing rule changes to its market, the world’s biggest greenhouse-gas program by traded volume.

The commission is seeking to tighten the program’s supply glut as a new phase begins this year and traders are worried they are exposed to further “discretionary regulatory changes,” Sarah Deblock, EU policy director at the Geneva-based International Emissions Trading Association, said in an interview.

Some buyers will probably wait for prices to drop further and the commission has limited influence to contain the market’s decline, said Jefferies’ Gray. When the bloc set the program’s cap before 2008, it didn’t install a system for dealing with a supply glut.

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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