Carbon Jumps to 13-Month High as Glut Fix Set to Tighten Supply

Carbon futures rose to the highest in more than 13 months amid speculation the European Union’s plan to postpone sales of some allowances will drive factories and utilities to buy more of the pollution rights.

Permits for December jumped as much as 3.6 percent to the highest since Dec. 28, 2012, on the ICE Futures Europe exchange in London. Carbon surged 39 percent this year, the most among 80 commodities tracked by Bloomberg.

The European Commission aims to scale back selling of permits as soon as next month in an effort to lift carbon prices to levels that discourage burning of fossil fuels and spur investment in cleaner energy. The EU’s executive arm plans to withhold the equivalent of about half of a year’s supply of emission allowances through 2016 and return them to the market at the end of the decade, known as backloading.

“It’s the first time we’ve seen a supply reduction layered into the market,” said Trevor Sikorski, a gas, coal and carbon analyst in London for consultant Energy Aspects Ltd. Speculative buyers and utilities may be pre-empting the physical reduction in supply, he said today by telephone.

The benchmark contract for December climbed as high as 6.92 euros ($9.48) a metric ton on ICE and traded at 6.87 euros at 4:59 p.m. Prices may end the year at 8 euros, Sikorski said.

Topping Up

Under the EU’s emissions market, permits allowing holders to emit one ton of carbon dioxide are allocated for free or auctioned to about 12,000 factories and utilities that must have enough to account for their discharges or pay fines. Prices plunged from almost 30 euros a ton in 2008 as the global financial crisis curbed industrial activity, damping demand for pollution permits.

Some factories receiving free allowances for 2013 this month may be topping up supplies in the market, Sikorski said.

The commission’s backloading plan envisages postponing the sale of 900 million permits, with as many as 400 million to be withheld this year. The emergency regulation will be adopted after member states end scrutiny of the measure in a decision scheduled for Feb. 24.

Higher carbon prices will already be discouraging use of the least-efficient coal plants in the U.K., which has imposed a carbon tax underpinning traded prices, Sikorski said.

“The most-efficient gas plant is coming into merit now,” he said, referring to “merit order” used by utilities to rank relative costs for different fuels.

The U.K.’s effective greenhouse-gas price for the six months through September, the summer period, is 18.48 euros a ton, including 9.55 pounds ($15.96) a ton for the U.K. carbon-floor price, according to data compiled by Bloomberg.

United Nations Certified Emission Reduction credits for December were unchanged at 37 euro cents a ton on ICE.

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