European Union carbon dioxide allowances jumped the most in almost two years as Germany suspended previously agreed extensions on nuclear plants following explosions at Japanese reactors.
Permits for December rose 5.5 percent to close at 16.60 euros ($23.24) a metric ton on the ICE Futures Europe exchange in London, the biggest jump since April 14, 2009, to the highest price since May 6. Trading volume was more a record 20.5 million tons, more than three times the recent norm.
Germany will suspend plans for at least three months to extend the operating life of the country’s nuclear plants pending an inquiry into their safety, Chancellor Angela Merkel said. Closing those plants earlier than expected would probably boost demand for fossil power and carbon permits.
Merkel made the announcement so soon after the Japan earthquake because she needs support in German state-government elections this year, said Dennis Mignon, a trader with First Climate in Bad Vilbel, Germany. The nation would probably be forced to burn additional coal and gas for power, Mignon said today by phone. “That’s bullish for CO2.”
Assuming extensions are cancelled, there would be an additional demand for 700 million tons of carbon through 2020, said Heiko Siemann, an analyst for UniCredit SpA in Munich.
“The decision has to be seen against the background of enormous ongoing political pressure on the government in this super-election year, with seven regional elections scheduled,” Siemann said today in an e-mailed research note. “It might result in an immediate shutdown of Neckarwestheim, and a shutdown of Biblis A and Isar1 in the summer.”
Carbon permits are up 17 percent in 2011, tracking natural gas, as power utilities buy to hedge forward sales of power. Utilities need half as many permits when burning gas compared with coal. U.K. natural gas for delivery in the six months through September, the summer contract, surged 6.4 percent today on ICE.
Carbon prices may rise this week as traders with shortfalls buy to fill open positions, analysts including Konrad Hanschmidt at Bloomberg New Energy Finance in London said today in an e-mailed research note.
The EU may sell about 400 million tons of allowances for phase three, including 300 million tons from its so-called New Entrant Reserve, New Energy Finance said. Phase three is the eight years starting 2013. A decision to sell about 400 million tons of permits or fewer may push up prices, the analysts said.
Should the EU decide later this week to sell close to 600 million tons, carbon permits may fall, according to New Energy Finance.