Carbon Falls for Fourth Quarter Before Parliament’s Supply VoteAlessandro Vitelli
European Union carbon fell for a fourth quarter as lawmakers prepared to vote next week on measures that could allow regulators to temporarily cut an oversupply of allowances.
Allowances for December declined as much as 7.5 percent to 4.10 euros ($5.33) a metric ton and closed at 4.21 euros on London’s ICE Futures Europe exchange. The contract lost 12 percent in the second quarter. The European Parliament is scheduled to vote July 3 on a proposal allowing the European Commission to delay the sale some permits.
Prices plunged as much as 92 percent from a record 29.69 euros a ton in 2008 as the global recession cut industrial output, damping demand for allowances. The oversupply grew to about 1.8 billion tons, or approximately one year’s cap on climate pollution in the market, according to Bloomberg New Energy Finance.
“Fundamentally the market is oversupplied, even after a delay of 900 million permits,” Matteo Mazzoni, an analyst at Nomisma Energia Srl in Bologna, Italy, said today by phone. “Nine hundred million permits is only 50 percent of the problem.”
While prices may increase in the short term if the Parliament approves the so-called backloading proposal next week, they’re unlikely to rise above 6 euros, Mazzoni said.
“There’s no real driver to bring the price above 6 euros,” he said. “The Parliamentary vote is just one step in the process.”
The Parliament rejected a proposed measure on backloading on April 16. The new plan would require the Commission to begin reintroducing the 900 million permits to the market immediately after it has finished withdrawing them, though it’s unclear how this would be carried out, according to Fred Payne, a carbon trader at CF Partners U.K. LLP in London.
“Even if parliament next week votes for the compromise, that won’t make the backloading framework clear,” Payne said today by phone. “We still don’t know the details of how supply will be returned to market, complicating price forecasts.”
United Nation carbon offsets rose 52 percent this quarter after an EU ban on the most common type of permit went into effect April 30. That’s the first quarterly increase since the contract began trading in 2011, according to ICE Futures data.
Certified Emission Reductions for December climbed 2 percent to close at 50 euro cents a ton, the highest in more than six months.
The ban affects CERs generated at projects that destroy hydrofluorocarbon-23 and nitrous oxide, two of the most powerful greenhouse gases. So-called “grey CERs” from these projects represented more than half the total supply of offsets from 2005 through 2012, according to UN data.
“The market is free of the shackles of grey CERs and huge ERU issuances that forced prices below 1 euro at the end of last year,” Richard Chatterton, an analyst at Bloomberg New Energy Finance in London, said in an interview June 19. “The price won’t rise back above 1 euro, but movements are likely to become more correlated with EUAs in the short-term.”
Trading in all CER futures dropped 46 percent to 94.6 million tons on ICE Futures. That’s the least since the first quarter of 2008, according to ICE data compiled by Bloomberg.
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