EU Carbon Allowances Have Weekly Jump as Auction Supply Declines

  • Permits rebound after falling near their lowest in two years
  • Coal’s decline makes dirty fuel more attractive for utilities

European Union carbon allowances rose for the first time in three weeks as supply in almost-daily auctions halved because of August holidays.

Benchmark permits jumped 7.2 percent, the biggest weekly increase since July 15, as the cover ratio at sales advanced to the highest since October. The cover ratio measures bidding interest divided by the allowances on sale.

EU permits fell in each of the past three months and are down 43 percent this year as lawmakers struggle to deal with a supply glut that’s about a full year of supply. Nations and the region’s parliament in Brussels are considering a proposal by the European Commission to adjust the system to stricter pollution-reduction goals for 2030. Auction volumes are cut by about 50 percent this month because of lower demand when traders are away from their desks.

“The rebound is due to the reduction in the volumes of EU allowances to be auctioned this month,” said Elchin Mammadov, an analyst in London at Bloomberg Intelligence in London. “Many traders are on vacation until late August.”

Carbon rose as coal for Europe in 2017 dropped a record 8.9 percent for the week, according to data from brokers. Lower coal prices can encourage utilities to use the dirtier fuel, which requires about double the emission allowances compared with natural gas.

The cover ratio at a carbon allowance sale on Friday by Germany on the European Energy Exchange AG was 4.4 times, the highest since Oct. 23. The sale price at 4.75 euros ($5.26) a metric ton was 6 cents above the benchmark December price on ICE. Allowances then advanced to their high for the week, 4.85 euros, which was also the highest since July 19.

On Aug. 2, allowances dropped to the weekly low of 4.30 euros a ton. That’s close to the two-year low of 4.28 euros reached on July 1, a week after the U.K. voted to leave the EU.

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