Carbon Advances as Policy Makers Consider Supply Flexibility

European Union carbon permits advanced to close at their highest this week as policy makers held talks on ways to adjust sales of allowances to address a surplus that depressed prices.

Finance, industry and market representatives met in Brussels today to discuss “technical aspects” of a possible reserve mechanism to make the amount of permits EU countries sell at auction more flexible, the European Commission said Sept. 24. Isaac Valero-Ladron, a spokesman for the commission, declined to comment immediately on the talks when reached by phone today.

Allowances for December rose 2.5 percent to close at 5.28 euros ($7.17) a metric ton on ICE Futures Europe in London. The contracts have fallen 36 percent in the past year and slumped to an all-time low of 2.46 euros on April 17.

The EU is seeking to tighten the supply of permits in its emissions trading system, the world’s largest, to help deal with a glut that’s swelled to about 2 billion tons of carbon dioxide, according to commission estimates. That’s equivalent to about a year’s supply of allowances.

Under the bloc’s cap-and-trade program, emission permits are allocated for free or auctioned to power plants and factories, which must surrender them to cover discharges. The commission, the EU’s regulatory arm, has separately proposed to temporarily reduce supply sold at auction by 900 million tons through 2015.

Permit Shortage

The Alliance of Energy Intensive Industries is resisting moves to tighten supply. Some industries face a permit shortage of more than 30 percent in the eight years through 2020 after the bloc scaled back free allowances by an average 12 percent for the period, the trade group said yesterday.

Even the region’s most energy-efficient factories will need to buy allowances, placing them at a disadvantage compared with competitors outside the EU, Alain Mathuren, an Alliance spokesman in Brussels, said in an interview yesterday.

Oil refiners probably will need to buy 37 percent of the permits they need in the period, fertilizer makers 40 percent and chemical makers 31 percent, he said.

Industries may move outside the EU where there are no emission limits, a process known as carbon leakage, Mathuren 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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