The European Parliament agreed to speed up the approval of a carbon-market rescue plan, enabling an intervention aimed at bolstering prices to begin as soon as this quarter.
Carbon permits for December jumped 6.2 percent to close at 6.54 euros ($10.69) a metric ton, the highest in more than a year on the ICE Futures Europe exchange in London, after lawmakers today in Strasbourg, France, endorsed the plan 306 votes to 276, with 14 abstentions.
“It is the best-case scenario eventually materializing,” said Matteo Mazzoni, an analyst at Bologna, Italy-based Nomisma Energia srl, an adviser to energy companies, governments and banks. “It is good news for the market.”
The rescue proposal involves delaying the sale of 900 million permits in the European Union’s emissions-trading system to help prices rebound from levels the bloc’s regulator says fail to discourage burning fossil fuels. The cost of discharging one metric ton of carbon-dioxide has plunged about 80 percent since 2008 amid a glut of allowances exacerbated by the economic slowdown.
The Parliament’s decision to shorten the scrutiny period on the market fix, known as backloading, enables withholding 400 million permits from government auctions this year compared with 300 million in a scenario where the fast-track recommendation would be rejected. The EU rescue plan ties the volume of allowances to be backloaded this year to the starting date of the fix.
“We estimate that backloading could start on March 17,” Itamar Orlandi, an analyst at Bloomberg New Energy Finance in London, said in an e-mail.
The emergency measure needs to be cleared by both the Parliament and the EU Council of national governments before it enters into force. Representatives of member states gave their initial approval to fast-track adoption yesterday. The measure is now tentatively scheduled to receive formal sign-off from ministers on Feb. 24, according to an EU official with knowledge of the matter.
Carbon prices will jump to 7.75 euros a metric ton by the end of the year amid the planned supply curbs, according to the median of nine analyst and trader estimates compiled by Bloomberg News last month.
Following the formal end of the evaluation by the Parliament and member states, the commission would typically need several days to publish the measure in the Official Journal, the publication of record for the EU. It also needs to give market participants two weeks notice of the new auction calendar. It isn’t clear if that period can be shortened.
New Energy Finance’s prediction that backloading could begin on March 17 assumes that the regulation is published in the week starting Feb. 24 and that the announcement on new auction calendars is made on March 3. There is now more likely to be 400 million tons of backloading this year than 300 million tons, Konrad Hanschmidt, head of carbon analysis at New Energy, said today by e-mail.
Today’s vote “shows that the will is there but the process was so complicated and flawed and there was so much delay,” Nick Eagle, a trader at Clean Energy Group Ltd. in London, said today in an e-mailed response to questions. “You can’t avoid the fact this was meant to be the easy bit.”
A more permanent tightening of the market “will be much harder to agree” and realization that this political fight is still to come “could lead to a sell-off after the excitement has died down,” he said.