Jefferies Lowers 2013 Average Carbon Price Forecast by 13%

Jefferies Group Inc. cut its forecast for European Union 2013 carbon permits by 13 percent as the bloc seeks a solution to an excess of the allowances that forced prices to a record low last month.

The contract will average 5 euros ($6.49) a metric ton through December, Matthew Gray, a London-based carbon analyst, wrote in an e-mailed research note today, lowering its estimate from 5.75 euros. The permits will trade at 6.50 euros a ton by expiry at the end of this year, he said, cutting a previous forecast of 8 euros.

EU permits for December fell 2.2 percent to 4.79 euros at 2:43 p.m. on London’s ICE Futures Europe exchange. They dropped to a record 2.81 euros Jan. 24.

The European Parliament’s environment committee last month approved a plan from the bloc’s regulator to withhold 900 million tons of allowances over the next three years and redistribute them in 2019-2020. The panel rejected a bid to negotiate the proposal in a fast-track procedure, which may delay the approval of the so-called backloading plan by two months.

“We are still confident that Germany will vote in favor of backloading,” Matthew Gray, a carbon analyst at Jefferies, said in an e-mailed report today. “But due to their hegemonic status in Europe, German approval will likely be conditional. For this reason, EUA volume being delayed in 2013 seems unlikely.”

The surplus of permits in the EU emissions trading system in 2012 will rise nearly 70 percent from a year earlier to 1.6 billion tons, Gray said. That’s equivalent to 87 percent of the cap on emissions last year, according to data compiled by Bloomberg.

2012 Emissions

Factories and power stations within the EU emissions-trading system emitted 1.88 billion tons of carbon last year, up 0.6 percent from 2011, Gray said in the research note. Bloomberg New Energy Finance predicts 2012 emissions of 1.96 billion tons. Preliminary data will be published in April.

The increase is because it’s more profitable to burn coal than gas in power stations, according to Gray. The year-ahead clean-dark spread, a measure of the profit from burning coal to generate electricity, was at 7.58 euros a megawatt-hour today, while the equivalent measure for gas was minus 14.4 euros, according to data compiled by Bloomberg.

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