Carbon Traders Face Risk Supply Won’t Turn Up, Barclays Says
European Union carbon traders are attempting to deal with the risk that supplies of EU permits expected in January won’t turn up, according to Barclays Plc.
A plan by lawmakers to deal with a glut in supply by temporarily removing volume “can’t all happen in the second half” of next year, Louis Redshaw, head of carbon and coal for Barclays in London, said in a telephone interview.
The process, known as backloading, seeks to cut an oversupply that has grown to about a year’s total allocation, or about 2 billion metric tons, the European Commission in Brussels said in a report last month. The regulator has said the EU will sell about 1 billion tons of carbon allowances next year, or about 20 million tons a week, after giving them away mostly for free in the first eight years of its greenhouse gas market.
The commission, the 27 nations selling and the European Energy Exchange AG in Leipzig, Germany, haven’t yet finalized a timetable of auctions and volumes for January, according to Eileen Hieke, a spokeswoman for the exchange.
“There’s a risk the 20 million tons a week that we are expecting from January could be significantly lower,” Redshaw said yesterday. “That’s because we don’t know the auction timetable and there is a strong push for a backloading that is due to remove volume from 2013.”
The EU, which plans to announce details of its backloading plan on Nov. 14, already has started selling 120 million tons of allowances for Phase 3, which begins next year and runs through 2020, under a program called early sales.
The EU’s carbon auctioning regulation, amended in November last year, allows part of that volume to be spread “over auctions conducted in 2013,” Hieke said Nov. 7 in an e-mailed response to questions.
“The timing and volumes of the auctions for 2013, however, have so far not yet been determined,” she said. “EEX will announce the auction calendar for 2013 as soon as possible once it is commonly agreed with the European Commission and the participating member states.”
That binding regulation says one of its aims is to “provide predictability to the secondary market,” according to the commission website.
The bloc should “establish for each calendar year a detailed auction calendar, with all relevant information for each individual auction well before the beginning of that calendar year,” the rule states.
It also states volumes “should be spread evenly throughout the year.”
The EU will probably sell about 197 million tons of carbon allowances in the first two months of next year, even as it seeks to win approval for the supply-glut fix from nations including Poland, Bloomberg New Energy Finance said Oct. 19.
“The commission may be eager to push backloading through, but to deliberately ignore the process they have followed thus far would be politically contentious, hence why we see it as almost certain the volumes at the start of the year won’t be reduced,” James Cooper, an analyst in London for New Energy Finance, said last month in an e-mailed response to questions.
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