EU Carbon Allowances Have Biggest Monthly Gain in Two Years

  • Engie CEO Mestrallet draws up plan to boost minimum prices
  • Natural gas and power contracts jump as commodities rebound

European Union carbon allowances are headed for their biggest monthly jump in more than two years as energy prices surged and lawmakers considered new rules to deal with an oversupply in the world’s biggest cap-and-trade market.

Benchmark allowances jumped 22 percent in April as U.K. natural gas for summer 2017 rose at a record pace and German power for next year gained faster than at any time in the past five years, according to data from ICE Futures Europe and brokers.

Ian Duncan, the European Parliament’s lead lawmaker on repairing the EU emissions-trading system, raised the possibility that the EU may cut greenhouse gases at a faster pace each year after 2020. A proposal by French President Francois Hollande to create a carbon price corridor in the EU “also had a positive impact” alongside higher energy prices, said Jahn Olsen, an analyst at Bloomberg New Energy Finance in London.

Carbon had a second monthly gain after plunging 40 percent this year through February as regulators grapple with a glut in the market that’s equivalent to a full year of supply. Gerard Mestrallet, the chief executive officer of French utility Engie SA, is drawing up a plan for rules that would guide prices in the market to higher levels.

“Our idea is to propose a carbon corridor, with a growing minimum price over time because the current market signal is not enough,” Mestrallet said Friday on a conference call. “It’s never a simple task” to convince member states to agree to higher carbon prices and a minimum might be seen as a tax, which requires unanimous support among nations, he said.

December carbon allowances rose 0.2 percent to 6.35 euros ($7.27) a metric ton by 3:22 p.m. London time on ICE, paring the monthly gain. Weekly volume more than doubled to 156 million tons.

Representatives of political groups in the EU Parliament’s environment committee will weigh an option to propose speeding the pace of greenhouse-gas cuts to 2.4 percent or 2.6 percent a year after 2020, according to a document presented by Duncan. That compares with 2.2 percent put forward by the European Commission, the bloc’s regulatory arm, following endorsement by EU heads of governments.

Before it's here, it's on the Bloomberg Terminal.