Carbon Rises as Industry Concerned Allowances Will ‘Skyrocket’

European Union carbon permits rose for a fourth week as a chemicals industry lobby group in Brussels said factories in the region were concerned prices will surge.

“Prices will skyrocket when demand exceeds supply of allowances,” Peter Botschek, director of energy, health, safety and environment at the European Chemical Industry Council, said yesterday in a conference call with Bloomberg News. “Every industrialist in Europe will see that. Either you increase your efficiency and innovate, or you leave Europe.”

December benchmark permits advanced 1.5 percent this week, extending last week’s 17 percent gain. The European Commission on Sept. 5 scaled back national requests for free allowances by an average 12 percent through 2020. Factories from 10 main industries covered by the market including steel and cement will get about 5.5 billion metric tons of allowances in the period, according to a commission statement. They are valued at about 29.7 billion euros ($40 billion) at today’s prices.

Factories are worried prices will rise and they won’t get the permits they need, Mark Owen-Lloyd, a trader at Clean Energy Group Ltd. in London, said today by e-mail.

“We have seen big buying from 4.20 euros onwards from industrial clients,” Owen-Lloyd said. “They are happy to put them aside, believing the price will be significantly higher next year based on the belief that the emissions trading system cannot sustain such a low carbon price for ever.”

Benchmark December permits rose to the highest in eight months, gaining as much as 3.6 percent to 5.83 euros on the ICE Futures Europe exchange in London. The contract closed at 5.41 euros a ton, down 3.9 percent from yesterday. It’s dropped 34 percent in the past year as lawmakers seek to deal with a glut in supply.

In total, the commission will hand out about 6.6 billion tons of free allowances, subject to a review of its policies next year, it said in the statement.

‘Filling Pockets’

Nations will sell allowances they don’t hand out for free. The scaling back is “filling the pockets of government rather than generating growth,” said Hubert Mandery, executive director of the chemicals industry council.

“It’s another blow for people wanting to do business in Europe,” Mandery said yesterday on the call.

Poland will sell allowances for the first time on Sept. 16. Volume that day, including permits sold by other EU nations, will be 7.1 million tons, the second highest ever for a single day, according to data compiled by Bloomberg. The record was 8 million tons on March 19.

Europe is the only region taking climate protection overly seriously, Mandery said.

The chemical industry is concerned that proposals to tighten the emissions cap too fast will drive production elsewhere, he said.

“There are some very wild ideas,” he said. “There are other places in the world at least as interesting as Europe for investment. With regards to climate policy, don’t go for what is desirable, go for what’s affordable.”

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