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EU Carbon Prices Poised for Further Gains, Barclays Says

Higher prices for European Union carbon dioxide permits may be sustainable following Germany’s decision to halt its oldest reactors, according to Barclays Plc.

“The reaction of the market was swift, and although prices have seen some modest correction, the prices look like they are now at a higher level that will be sustained,” Trevor Sikorski, a London-based analyst at Barclays Capital said today in a research note. “We do see the market as being ripe for a more measured movement upwards in the coming weeks.”

EU emissions permits for December jumped 9.5 percent last week and traded at the highest in two years on speculation that a meltdown at Japan’s Fukushima Dai-Ichi plant would force European utilities to use of more CO2-intensive fossil fuels. They fell as much as 2 percent today as officials with the U.S. Nuclear Regulatory Commission said the plant “is on the verge of stabilizing.”

Germany’s decision to halt its seven oldest reactors and speculation that demand for liquefied natural gas will increase in Japan spurred higher prices for emissions permits, Sikorski said. The EU trading program will have 450 million tons of spare allowances for the years through 2012, even with a permanent suspension of the reactors, he said. Still, “prices can rise in the face of utility buying.”

Utilities that still need to buy permits were unlikely to have bought them all in the last few days, Sikorski said.

“There is more incremental buying to come” he said. The annual round of purchasing power contracts will further increase buying emissions permits, he said.

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