EU Carbon Rises to Highest Since 2012 as Bloc Tightens Market

European Union carbon allowances rose to the highest level since 2012 after the bloc proposed tightening the market and Greece’s new bailout reassured investors.

An unprecedented recasting of the carbon market will probably remove 85 percent of a glut of permits that eroded incentives to reduce emissions, a Bloomberg survey showed July 14. Last week’s proposal by the EU Commission to tighten the program will effectively cut the cap through 2020 by at least 1.4 billion metric tons, the equivalent of 88 percent of the yearly cap, Bloomberg New Energy Finance estimated Monday.

Benchmark carbon allowances settled 3.1 percent higher on ICE Futures Europe, the biggest gain since April 20, data compiled by Bloomberg showed. Prices rose as the Stoxx Europe 600 Index of shares advanced for a ninth session, after climbing the most since January last week as Greece and its creditors reached an accord paving the way for a new bailout.

“Uncertainty over Greece had prevented the market from factoring in much of the upside from the measures to reduce supply starting last year and the reserve being set up to restore scarcity more permanently,” said James Cooper, an analyst with New Energy Finance in London. “The debt deal has alleviated some of this concern, with some funds now likely more comfortable taking positions to profit from future price rises.”

EU carbon allowances for December settled at 7.99 euros ($8.67) a ton on ICE, the highest since Nov. 13, 2012, after rising as high as 8.01 euros. Volume almost doubled from the previous session to 19.7 million tons.