EU Carbon Has Record Gain as Germany Considers Oversupply Fix

European carbon jumped by the most ever after German Chancellor Angela Merkel said she backed moves to claw back renewable energy subsidies and as the nation considers ways to fix a glut of greenhouse-gas allowances.

European Union carbon permits soared as much as 29 percent today after Merkel told reporters in Berlin that Environment Minister Peter Altmaier’s proposals on changing the country’s clean-energy subsidy system to keep costs in check are “important, good.” The government may ask owners of renewable-power generators to take a one-time cut in their so-called feed-in tariff, Altmaier said Jan. 28.

Carbon prices were also boosted after Altmaier said Germany may clarify its position in the next two months on the EU’s plan to temporarily cut supply by 900 million metric tons through 2015 in a process known as backloading. The bloc’s climate-protection program is the world’s biggest by traded volume.

EU carbon permits for December closed 92 cents or 27 percent higher at 4.34 euros ($5.93) a ton on London’s ICE Futures Europe exchange. That’s the biggest-ever increase for the contract.

Subsidies to new projects may also be delayed to help curb costs, Altmaier said Jan. 28.

“Should subsidy reductions lead to fewer renewable-energy projects, then we could see that translate in greater demand than there otherwise would be if those projects had taken place,” Eric Bickel, an analyst at Summit Energy Services in Louisville, Kentucky, said today in an e-mailed response to questions.

Carbon Glut

The carbon-permit glut, which will reach about 1.8 billion tons by April, was formed when factories and power stations cut energy use and the need for emission allowances after the European market started in 2005. The euro area’s second recession since 2008 has damped industrial demand for permits, driving their price to record lows.

Germany has been undecided on whether to support the European Commission’s plan to temporarily curb the carbon glut. “We will have to position ourselves when the issue arrives at the council of ministers in mid March,” Altmaier said.

Merkel is under pressure from voters and electricity consumers to cut subsidies and keep power prices as low as possible, said Jens Teresniak, an energy economist in the trading and generation unit of Stadtwerke Leipzig GmbH in Leipzig, Germany. Still, just because Merkel agrees with Altmaier on cutting renewable energy subsidies doesn’t mean she will support him on backloading, he said today by e-mail.

Cutting Costs

Europe should consider cutting costs for consumers by rewarding renewable power and energy efficiency through the region’s carbon market rather than through expensive subsidies to utilities, Klaus Schaefer, the head of EON SE’s trading unit, said in an interview Nov. 21.

“Germany is more likely to support backloading, but its endorsement is still far from guaranteed,” Itamar Orlandi, analyst at Bloomberg New Energy Finance in London, said today in an e-mailed note.

Certified Emission Reductions for December slipped 2.9 percent to 33 euro cents a ton.

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