EU Carbon Breaks 5-Week Rising Streak as Nations Seek Glut Fix

  • German option to support European floor seen as `random'
  • Building consensus for EU-wide floor problematic: Jefferies

European Union carbon emission permits dropped for the first week since March 25 amid skepticism about nations’ proposals to reduce an oversupply of the pollution rights.

Benchmark allowances fell about 5 percent this week, the steepest decline since February, according to ICE Futures Europe data. The contract rose earlier in the week after Germany said it might support a minimum European carbon price in its draft outline for the nation’s energy and climate policy through 2050.

Germany’s proposal followed a plan last week by French President Francois Hollande for a carbon-price corridor that would increase the cost of pollution to spur investment in cleaner technologies. Renewable-energy subsidies, closures of coal plants and national carbon taxes have undermined demand for carbon allowances, which have lost about 80 percent of their value since 2008.

A price minimum amounts to “another seemingly random measure,” said Louis Redshaw, founder of carbon-market consultants Redshaw Advisors in London. “This is not a market demonstrating good design. It looks like a market in serious risk of becoming a tax.”

Higher Prices

An EU-wide carbon floor of 30 euros ($34) a metric ton would imply an increase of 9 euros a megawatt-hour in French power prices, according to estimates by Jefferies Group LLC. That’s about 30 percent above current prices for year-ahead power, broker data compiled by Bloomberg show.

Carbon allowances fell 4.8 percent to 5.90 euros a ton on the ICE Futures Europe exchange in London at 3:08 p.m.

“Building consensus for an EU-wide carbon price floor would be problematic,” said Jefferies analysts including Ahmed Farman in London. “Therefore this scenario is unlikely in the near-term.”

The German government favors a market that may include a Europe-wide minimum price “to set a sufficiently strong price signal,” according to the document obtained by Bloomberg News. Chancellor Angela Merkel’s government plans to publish its policy recommendations in early summer.

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