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EU Carbon May Rise in 2013 on Utility Buying, Deutsche Bank Says

Prices for carbon permits in the European Union’s emissions-trading system may rise next year after the market’s regulator proposed a temporary cut in supply, according to Deutsche Bank AG.

The EU Commission, the regulator, proposed on Nov. 12 to postpone the sale of 900 million permits from 2013 through 2015 until 2019 and 2020, a process known as backloading. The commission is considering ways to reduce an oversupply of permits after the economic crisis cut industrial output and demand for carbon allowances. Prices for December fell to a record of 5.99 euros ($7.71) a metric ton in April.

“We don’t need the whole surplus to be taken out to see price tension,” Mark C. Lewis, a utilities analyst at the bank in Paris, told delegates today at a conference in Amsterdam. “Nine hundred million is a decent number but we think there needs to be a more permanent solution.”

Permit prices may rise next year as power generators begin to buy allowances to cover the emissions from generation two years in the future, he said.

“I think in the short term prices will remain weak and in the second quarter you could see them start to recover as utilities enter their seasonal hedging period,” he said. “If there is no economic deterioration then prices could rise to 15 euros a ton as utilities hedge in the secondary market.”

Lewis said he was “more optimistic than we have been for a long time” after the EU presented its backloading proposal.

The bloc’s carbon market will have a surplus of 1.5 billion metric tons of permits by 2020, Lewis said.

“Any deterioration in the economy will increase the surplus further,” he said.

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