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EU Carbon Posts Biggest Weekly Gain as Merkel Urges Surplus Fix

European carbon prices posted their biggest-ever weekly gain after German Chancellor Angela Merkel urged action on the bloc’s plan to delay supply of permits.

The December futures contract advanced 22 percent since April 26 to close at 3.78 euros ($4.98) a metric ton on London’s ICE Futures Europe exchange, the highest since April 16. The contracts jumped as much as 23 percent today, and trading volume doubled to 27 million tons from yesterday’s levels.

Prices plunged to a record 2.46 euros last month after the European Parliament rejected a plan to postpone the sale of some permits over the next three years and reintroduce, or backload, them to the market in 2019 and 2020. Prices have slumped 50 percent from a year ago as the euro area’s second recession since 2008 cut demand for permits, exacerbating a glut.

“This is a strong boost, it’s exactly what the market needed,” Milan Hudak, an analyst at Virtuse Energy sro in Prague, said by e-mail. “Even though this is a strong signal from Germany, backloading will not happen sooner than in 2014 and we still don’t know the final version of it.”

Europe’s emissions-trading system imposes limits on about 12,000 power plants and factories. The program allocates permits to polluters that must surrender enough allowances to cover their discharges of carbon dioxide or pay fines. Lower prices mean it can be cheaper for companies to buy emission rights rather than invest in climate-friendly technologies.

‘Great Intensity’

Germany’s clean-energy law must be overhauled with “great intensity” after the country’s elections on Sept. 22 and action should also be taken in the carbon market as lower-than-expected economic growth led to falling prices for certificates, Merkel said today at a Protestant church event in Hamburg.

“Something also has to be done on backloading, otherwise we have a development that goes in the wrong direction,” Merkel said. “All of the assumptions that are the basis of CO2 trading no longer apply.”

While Merkel acknowledged that her Cabinet doesn’t have an agreed position on how to fix the carbon glut, “we have to achieve a breakthrough in which we better link the CO2 certificates with the subsidy of renewable energies,” she said.

Germany’s politicians and industry had expected certificate prices of at least 15 euros a ton, Merkel said.

“That’s why at the moment, financing for a long-term positive change for the climate isn’t adequately secured,” Merkel said.

Most EU member states support the backloading proposal, with Poland leading a group of nations that oppose it.

“This is good news,” Artur Runge-Metzger, the EU’s Brussels-based lead climate negotiator, said of Merkel’s comments. “Of course it will have to be followed through,” he said in an interview at United Nations climate talks in Bonn.

United Nations Certified Emission Reductions for December advanced as much as 15 percent to 31 euro cents, the most in two weeks. The contract settled at 30 euro cents on ICE Futures.

To contact the reporters on this story: Alessandro Vitelli in London at avitelli1@bloomberg.net; Nicholas Brautlecht in Hamburg at nbrautlecht@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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