EU Carbon May Rise 14% as Traders Anticipate Vote, Hudak Says

European Union carbon permits may rise as much as 14 percent before the bloc’s parliament votes April 16 on a measure to boost prices, according to Milan Hudak, a Prague-based analyst at Virtuse Energy sro.

Allowances for December have jumped 81 percent to 5.08 ($7.37) euros a metric ton on London’s ICE Futures Europe since falling to a record on Jan. 24. They may advance to 5.80 euros as traders bet that the bloc’s assembly will approve an amendment to the emissions-trading law that would allow the European Commission to temporarily withhold 900 million permits from the market, Hudak said today by e-mail.

Carbon prices tumbled 83 percent since reaching a record 29.69 euros in July 2008. A glut of permits swelled to 1.88 billion tons, or 19 percent of the total supply in the five years through 2012, the market’s second phase, according to Bloomberg New Energy Finance. The EU released yesterday data showing that the surplus grew for a fourth year in 2012.

“Traders are increasingly persuaded that Parliament will support backloading, so they see prices rising before and possibly after the April 16 vote,” Hudak said. “Between now and then we’ll probably see a cautious increase, as traders regularly liquidate long positions to safeguard any profits.”

Fundamental Demand

There is also demand from power stations and factories seeking to hedge forward electricity sales and to secure permits to meet the 2012 compliance deadline on April 30, according to Jan Frommeyer, managing director at Tschach Solutions, an emissions market adviser.

“I don’t think the rise in prices is entirely due to betting on the vote in Parliament,” Frommeyer said today by phone from Frankfurt. “There is good fundamental demand from utilities to hedge forward power sales, and industrial companies are having to buy for 2012 compliance.”

Factories have previously been able to use permits from the next year’s allocation for compliance with the previous year’s cap, according to EU rules. This so-called “borrowing” isn’t permitted during the transition from Phase 2 of the market to Phase 3.

“Industrials were hoping to be able to swap some Phase 3 permits for surplus Phase 2 allowances in the market to achieve compliance,” Frommeyer said. Because the 2013 allocation hasn’t taken place, “they have to buy outright instead.”

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