Trading in European Union spot carbon permits rose this quarter compared with the last year’s average as factories and power plants bought back allowances they sold to raise cash at the start of Europe’s recession.
Trading in permits eligible for use in the five years through 2012 was 22 million metric tons in the first quarter, according to ICE Futures Europe exchange in London. That’s similar to the previous three months and double the quarterly average for the so-called Phase 2 permits handled in 2012 by NYSE Euronext SA’s Bluenext exchange, which closed in December.
Companies in the EU carbon market must surrender one permit for every ton of carbon dioxide emitted in 2012 by April 30 or face a penalty of 100 euros ($130) for each ton. Factories that sold allowances to raise money four years ago are now buying them back to meet emission obligations, according to Bostjan Bandelj, a director at trading company Belektron doo in Llubljana, Slovenia.
“Some companies sold a full year’s allocation at around 10 to 15 euros a ton in the 2009 to 2011 period just to get the cash, and they have no alternative but to buy now,” Bandelj said in a March 11 interview.
Phase 2 permits for spot delivery have fallen 24 percent this year to 4.88 euros a ton at 8:20 a.m. on ICE. The price of benchmark carbon futures has plunged 83 percent since their 2008 peak, while United Nations Certified Emission Reduction credits have fallen 99 percent.
Trading in phase 2 permits jumped to 18 million tons in February, a 30-fold jump from the previous month, ICE data show. The exchange handled 4 million tons this month.
Europe’s 54 billion-euro cap-and-trade system, the world’s largest, imposes emission limits on about 12,000 power plants and factories to spur investment in clean technologies. The program allocates permits to polluters, who must surrender enough allowances to cover their carbon emissions or face fines.
From 2008 through 2012, companies were given permits to meet their annual cap by Feb. 28 of each year. They had until April 30 to surrender allowances covering the previous year’s emissions. Market rules allowed companies that sold their permits to meet their carbon compliance obligations by “borrowing” from the next year’s allocation, Bandelj said.
The second phase of the EU’s market will end on April 30 when the compliance cycle for 2012 is completed. Companies can’t borrow permits from 2013’s allocation because it falls into the third phase of the market. This has caught some companies out, Jan Fousek, director at emissions broker Virtuse Energy sro in Prague, said in an interview.
“Several of our industrial clients sold their whole-year allocation, but only a few of them were thinking of what to do about the shortage in the future,” Fousek, whose company is active mainly in the Czech Republic and Slovakia, said March 11 without providing details.
Factories, power stations and airlines in the EU market may use UN Certified Emission Reductions, or CERs, and Emission Reduction Units to help meet emission limits. Prices of CERs for delivery in December have averaged 4.37 euros a ton less than EU allowances, or EUAs, since February 2011, according to ICE.
“Our clients’ EUA purchasing is now for 2013,” Fousek said. Those who are buying for compliance in the second phase are seeking cheaper ERUs or CERs, he said.