EU Carbon Erodes Weekly Losses as Natural Gas Contract Rebounds

  • Coal has risen 40% so far this year, twice the pace of gas
  • Natural gas prices seen falling lower as supplies advance

European Union carbon allowances pared a weekly loss after natural gas for summer 2017 rebounded from the lowest since June 13.

Benchmark permits fell about 1.1 percent this week in London on ICE Futures Europe, having earlier dropped as much as 4.6 percent. U.K. summer 2017 gas, an industry benchmark, traded 1.3 percent lower.

Carbon allowances track gas because lower prices for the fuel can encourage utilities to switch from coal, which requires about double the volume of emission permits when burned for power. Coal prices have risen 40 percent so far this year, more than twice the pace of summer gas, as lawmakers seek to deal with a glut in the greenhouse gas market.

Gas may fall further as imported supplies rise and consumption is sluggish, said Matteo Mazzoni, an analyst at Nomisma Energia Srl in Bologna, Italy. “There’s not much gas demand from utilities or industry.”

A month ago, Mazzoni expected carbon allowances might rise above 5 euros ($5.62) a ton this month, supported by lower supply in auctions that are pared back during the summer holiday season. “In the end, there wasn’t enough support,” he said.

December carbon allowances were little changed on the day at 4.71 euros a metric ton, having dropped to as low as 4.55 euros a ton on ICE earlier in the week. Summer gas earlier fell as much as 4.1 percent, while coal in Europe rose 2.8 percent week on week.

Weekly aggregate carbon-permit volume rose 7.6 percent to 51.8 million tons on ICE.

In New Zealand, spot carbon allowances rose 1.3 percent this week to NZ$18.20 ($13.29) a ton, the highest since July 2011, according to data from OM Financial Ltd.