EU Carbon Heads for Second Weekly Drop as Heating Demand Falls

  • Put-options trading advances ahead of call options on ICE
  • New measures to cut emissions seen overlapping with market

European Union carbon allowances head for second weekly decline as warmer weather damps demand for coal and natural gas.

Benchmark permits fell 1 percent week on week to 5.80 euros ($6.57) a metric ton on ICE Futures Europe in London at 1:27 p.m. In an auction held by Germany Friday, the cover ratio was 1.5 times, the second-lowest level in more than two years, according to data from the European Energy Exchange in Leipzig, Germany.

“There’s a high chance the price of allowances will fall to 5 euros a ton” this month as demand for heat drops, Matteo Mazzoni, an analyst at researcher Nomisma Energia Srl in Bologna, Italy, said Friday by phone. Permits may drop to 3.50 euros this summer, Pira Energy Group in New York estimated in February, as policy makers grapple to deal with oversupply in the world’s biggest greenhouse gas market.

A plunge in the price of carbon of about 80 percent from a 2008 peak has made coal, the most polluting fuel, more attractive than cleaner natural gas. Companies from Electricite de France SA to Engie SA have pushed for a minimum carbon price of at least 30 euros, arguing it would boost the use of gas. Coal plant operator EON SE’s Uniper unit said last month that a floor price would jeopardize jobs.

Chancellor Angela Merkel’s government Thursday said it would offer home and factory owners at least 13 billion euros in loans and subsidies over the next four years to reduce the carbon emitted from their properties. About 8 billion euros of the allocation is being offered in programs run by the Frankfurt-based KfW development bank Frankfurt, it said.

Such measures add to those already hurting demand in the carbon market, including subsidies for renewable energy, Mazzoni said. It’s not surprising traders are buying downside protection, he said.

The volume of put options traded on ICE, the main bourse for carbon trading, advanced to 7.11 million tons this week, the most since Feb. 12. It’s the first time put options exceeded calls since April 15. Put options give the buyer the right, but not the obligation, to sell at a certain strike price. Calls give the right to buy.

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