EU Carbon Declines to Record Before Sales of 15.7 Million Tons

European Union emission permits fell to a record before sales planned for this week of 15.7 million metric tons, which will further boost supply.

EU carbon for December dropped 3.1 percent as nations prepared for four auctions this week on the European Energy Exchange AG. A sale by Germany on Jan. 18 failed, even after EEX extended it by 15 minutes. The unsold volume will be added to the country’s next four weekly auctions.

Permits lost 16 cents to close at 4.95 euros ($6.59) a metric ton on London’s ICE Futures Europe exchange. Certified Emission Reduction credits for December rose 2 cents to 34 euro cents a ton on ICE.

Allowances in the emissions trading system, the world’s largest, are “worthless” without a change in the rules to tighten supply and curb a record glut, according to UBS AG. Low bids from utilities, factories and banks forced Germany on Jan. 18 to cancel a sale of permits for the first time. Today’s sale of prompt allowances by EU nations had a settlement price of 4.70 euros a ton.

“With current rules, the emissions trading system won’t work until 2045, thus carbon is worthless,” Per Lekander, a Paris-based analyst at UBS, said today in a research note.

Unsold volumes could exacerbate the market’s oversupply in subsequent sales, Bloomberg New Energy Finance said today, citing a potential “snowball effect.”

EU nations are considering whether to support a plan by the European Commission in Brussels to temporarily cut supply in order to deal with the glut.

German power for next year declined 1.2 percent to a record 42.20 euros a metric ton, according to data from brokers compiled by Bloomberg. Carbon can track power as falling electricity cuts the incentive to sell forward and hedge by buying fuel and carbon futures.

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