Carbon Permits Seen Rising 26% in Survey as EU Votes on Surplus

European Union carbon allowances will jump at least 26 percent if the bloc’s parliament votes in favor of a plan to temporarily cut a surplus, according to a survey of traders and analysts.

Allowances for delivery in December will increase by more than 1 euro ($1.31) to 6 euros a metric ton should the European Parliament approve the measure to postpone the sale of some permits, according to the median of nine analysts and traders surveyed by Bloomberg News. The forecasts ranged from 6 euros to 8 euros. Three people said parliament would support the measure, one said it would reject it and the others didn’t comment.

Should parliamentarians vote against the measure, permits will probably fall 49 percent to about 2.45 euros a ton from yesterday’s closing price of 4.76 euros on the ICE Futures Europe exchange in London, according to the median of eight forecasts in the survey.

EU lawmakers plan to vote today at noon Brussels time on the plan to delay the auction of permits covering 900 million tons of emissions through 2015 and reintroduce, or backload, them to the market at the end of the decade.

A vote for the measure would boost the value of 720 million tons of spare allowances that have built up in the market by 25 percent to 4.3 billion euros, based on the survey. Emitters including coal-burning utilities and airlines that need to buy permits would have to pay more to comply with their emissions obligations, increasing economic costs.

Reality Returns

“The price could push to 7 euros and perhaps beyond, but sooner or later reality will set in and the price will decline towards our average front-year EU allowance forecast of 5 euros,” said Matthew Gray, an analyst for Jefferies Group LLC in London.

The parliament is more likely to vote against the measure, said Matteo Mazzoni, an analyst at NE Nomisma Energia Srl in Bologna, Italy. That may drive prices down to about 2.40 euros a ton, he said yesterday by phone.

Permits will probably rise to more than 6 euros if the parliament votes in favor, he said.

“Prices would settle back down after the spike, since May is traditionally a selling month,” Mazzoni said. Emitters in Europe’s carbon trading system must hand in allowances to match the previous year’s emissions by April 30 every year and may buy them for compliance leading up to that date.

The European Commission’s strategy is designed to cut the surplus of permits that drove prices in the 54 billion-euro ($71 billion) greenhouse-gas market to a record low 2.81 euros a ton in January.

Watered Down

The market’s optimism that the vote would succeed “faded considerably last week,” when prices dropped 8.1 percent, said Kathrin Goretzki, an analyst for UniCredit SpA in Munich. It’s possible the parliament will support a watered down version of the commission’s plan, which may include a lower number of backloaded allowances, she said yesterday by e-mail.

December carbon permits may rise to 6 euros a ton assuming a “relative narrow majority” of parliamentarians in favor of the proposal, Itamar Orlandi, a Bloomberg New Energy Finance analyst in London, said in a note.

“Our base-case expectation is that the plenary will support the backloading plan with a narrow majority,” he said yesterday. Carbon may fall as low as 2.50 euros a ton if the parliament votes against the proposal, Orlandi said.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE