EU Carbon Posts Weekly Drop as Solar Output in Germany Advances

  • Hotter weather seen boosting allowance demand only modestly
  • EU commission proposes targets for non-carbon-market sectors

European Union carbon allowances fell this week as solar output advanced in Germany, trimming the need for fossil-fuel power.

Benchmark permits dropped 7.5 percent in the fifth weekly loss in six, according to the ICE Futures Europe exchange in London. Crude and summer U.K. natural gas also fell. Average solar output in Germany as of Thursday advanced 44 percent compared with the same period a week earlier, according to data from the European Energy Exchange AG in Leipzig, Germany.

Warmer-than-average temperatures will probably boost electricity demand next week, which may spur “modest” additional buying of carbon allowances, said Trevor Sikorski, an analyst in London with Energy Aspects Ltd. More solar power generation across Europe means the hotter weather is having less of an impact on demand for coal and natural gas power than previously, Sikorski said Friday in a phone interview.

Allowances dropped this week as the European Commission, the EU’s regulatory arm, on Tuesday recommended varied emissions goals for individual countries so the 28-nation bloc can reach its headline target for cutting greenhouse gas output by 40 percent by 2030 compared with 1990 levels. It proposed nine countries, including Ireland and the Netherlands, be able to use some EU carbon allowances to help meet limits in sectors not covered by the carbon market, including transport and agriculture.

The countries can use 100 million metric tons of EU permits in the 10 years through 2030, according to the plan. That’s the equivalent of about 6 percent of yearly emissions.

The commission proposal will probably trim supply of allowances in the traded market as auction volumes fall, though it’s too early to say by how much, said Ingo Ramming, London-based co-head of commodity solutions for Commerzbank AG.

“We would look at it as a safety valve,” Ramming said. “The publication of the legislative proposal is important,” because it will allow nations to continue work on new rules for the carbon market after 2020, he said in an e-mailed reply to questions.

Carbon allowances for December fell 2.1 percent to 4.56 euros a metric ton on ICE at 5 p.m. in London

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