EU Carbon Drops to Record After Nations Delay Vote to Curb Glut
European Union carbon permits dropped to a record after nations delayed a vote on a plan to temporarily cut the supply of allowances.
EU allowances for December plunged 5.8 percent to the lowest closing price since the contract was first listed in April 2005 on the ICE Futures Europe exchange in London. The EU commission, the bloc’s regulator, said yesterday member states would not vote next month on the plan to cut supply in the three years through 2015. They may not vote until June, according to Bloomberg New Energy Finance.
The European Commission called for nations in the bloc to reveal their positions on the proposal, which would reduce supply by 900 million tons, the equivalent of almost half a year’s full supply. Still, a Dec. 13 Climate Change Committee meeting of national representatives won’t ask countries to adopt a formal opinion or vote, the commission said.
“The low price levels are a sell off in the face of deep disappointment from within the market at the European Commission’s failure to deal quickly and decisively with the surplus issue,” said Daniel Rossetto, managing director of Climate Mundial Ltd., a London-based consulting company that works in carbon markets. “The market will need to hang out for quite a while longer before it gets the bullish news it’s looking for,” he said today in an e-mailed response to questions.
The emissions-trading system is the backbone of the bloc’s climate policy and “is here to stay,” Isaac Valero-Ladron, a spokesman for EU climate commissioner Connie Hedegaard, said today in Brussels.
Permits dropped 38 cents to close at 6.20 euros ($8.07) a metric ton. They earlier today traded as low as 5.89 euros, an all-time low intraday level. The monthly decline was 25 percent, the biggest since January 2009. Certified Emission Reduction credits for December declined 1 cent to 67 euro cents.
Poland has criticized the commission’s plan while Germany’s economy and environment ministers were last week at odds over whether to back it.
The complexity of EU lawmaking adds to the scientific and geopolitical uncertainties in the carbon market, making it increasingly unattractive, Jan Pravda, director of Prague-based Pravda Capital Trading, said today in an e-mailed response to questions.
The bloc plans to auction about 20 million tons of allowances a week starting next year, after giving 97 percent away for free in the five years through 2012, the second phase of the system, according to the program’s rules.
The postponement “is likely to mean that the Climate Change Committee will only vote on the supply delay around June next year, pushing the implementation to 2014,” Konrad Hanschmidt, an analyst at BNEF in London, said yesterday in an e-mailed research note. “The market will now turn its attention to the incoming auctioning supply that we continue to expect to send EU allowance prices to historical lows.”
The regulator must avoid flooding the market with permits, EU Climate Commissioner Connie Hedegaard said Nov. 14. Market operators need clarity on the backloading before the end of this year, while the Commission is highlighting options for a permanent fix to the oversupply, she said.
The front-year contract has dropped 26 percent in the last 12 months. Benchmark carbon traded as low as 1 euro cent a ton on Nov. 30, 2007.
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