EU Carbon Plan Emissions Fall as Mild Winter Cuts Power Use

  • Emissions in bloc's program decline 0.8%, BNEF estimates
  • Benchmark carbon permits drop to lowest level in five weeks

Pollution by companies in the European Union’s emissions cap-and-trade program, the world’s largest, fell by 0.8 percent last year as warmer-than-average weather reduced demand for electricity.

Preliminary EU data implies pollution in the bloc’s emissions trading system fell to 1.796 billion metric tons, the lowest since the market started in 2005, according to Bloomberg New Energy Finance. The estimate excludes airlines, which together with more than 11,000 installations owned by utilities and manufacturers are also a part of the EU ETS, Europe’s flagship policy tool to reduce greenhouse gases blamed for climate change.

Last year was set to be Europe’s second-hottest on record, the World Meteorological Organization said in December. Emissions from the power sector in the EU ETS declined 2.9 percent, with the largest drop coming from U.K. utilities, according to New Energy Finance’s calculations.

“In the U.K., fuel-switching and warm weather caused an 18 percent fall in power sector-related emissions on a like-for-like basis,” said Jonas Rooze, London-based analyst at New Energy Finance. “Spain, in contrast, saw a 17 percent increase in power sector emissions, but this was more than offset by declines in the U.K. and, to a lesser extent, Germany.”

Permits Fall

Emission permits for delivery in December dropped as much as 5.9 percent to 4.91 euros ($5.61) a metric ton, the lowest in more than five weeks. The benchmark contract traded at 5.16 euros on ICE Futures Europe as of 3:34 p.m. in London. Prices are still 78 percent lower than at the start of 2008 amid a glut of allowances aggravated by an economic slowdown that curbed industrial output and demand for permits.

The 2015 data is at the lower end of analyst forecasts ranging from a 1 percent increase to a 1 percent drop, according to Bernadett Papp, an analyst at Vertis Environmental Finance Ltd. in Budapest.

“This might explain the sell-off after the publication,” she said. “As the price broke above the declining trend line, there is a good chance that the price of the allowances stabilizes above 5 euros.”

Pollution Cap

Today’s data suggests that the annual decline in emissions is slower than the drop in supply of permits to companies in the system, a factor that may further weigh on prices. The pollution cap in the EU ETS program decreases 1.74 percent each year in the 2012-2020 trading period. Permits are handed out or sold by governments to cover each metric ton of carbon dioxide companies emit.

In 2014, carbon-dioxide discharges in the EU cap-and-trade program decreased by about 4.5 percent after falling by around 3 percent in 2013 on a like-for-like basis, according to the European Commission.

“In the last few days, EU allowances have traded higher o‎n the back of some speculative buying; purchases ahead of the surrender deadline by industrials,” Ingo Ramming, London-based co-head of commodity solutions for Commerzbank AG, said Wednesday in an e-mail. “With the news about emissions out, traders took profit. Over the next few weeks we would expect the market to remain subdued.”

The commission, the 28-nation EU’s executive arm, today granted access to 2015 emissions data at installation level. The information covers 87 percent of stationary installations, excluding aviation and newly added sectors, and the estimates were made on a like-for-like basis, according to New Energy.

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