Carbon Jumps as EU Discusses Proposal to Strengthen Market Fix




Carbon permits advanced the most in eight months as European Union climate officials gathered to discuss a proposal to strengthen the bloc’s emissions-trading system.

Benchmark carbon allowances climbed as much 9.3 percent, the biggest gain since April 1, on the ICE Futures Europe exchange in London. EU lawmakers are seeking to alleviate a permit glut that pushed prices down about 80 percent since 2008, reducing the penalty for burning fossil fuels.

Latvia, which took over the EU’s rotating presidency this month, proposed that 900 million permits withheld through 2016 be transferred directly to a reserve, according to two people with knowledge of the matter. That would bar governments from auctioning the permits — equivalent to about half of an annual emissions cap — in 2019-2020, helping ease the record surplus.

“Politicians generally seek to get commodity prices down, but European carbon isn’t like any other commodity,” said Louis Redshaw, founder of Redshaw Advisors Ltd., which buys and sells permits on behalf of factories. “Here they are trying to get carbon allowance prices up.”

EU allowances for delivery in December were up 7.6 percent at 7.32 euros ($8.39) a metric ton at 4 p.m. on ICE. Trading volume was more than triple the three-month daily average.

Climate officials from EU member states are scheduled to debate the draft carbon measure at a meeting in Brussels today and will continue talks in the coming weeks. The measure would impose automatic supply controls in the EU emissions-trading system, where each permit allows holders to emit one ton of carbon dioxide into the atmosphere.

“Our base assumption is that the 900 million tons goes straight into the reserve,” Redshaw said by phone.

Political Push

The presidency’s plan would enable establishing the market-stability reserve earlier than the 2021 proposed by the European Commission last year, while making it operational at a later stage, according to the people, who asked not to be identified, citing policy. Latvia didn’t suggest a concrete date for the creation of the reserve and put the proposed 2021 date in square brackets in a document sent to other member states, indicating it was open for a discussion, the people said.

The commission’s draft needs qualified-majority support from national governments and majority support by the European Parliament to be approved or amended. EU member states have been split on the plan, with Germany and the U.K. pushing for an early introduction in 2017 and Poland opposing an accelerated overhaul or transfer of withheld permits to the reserve.

Accelerated Overhaul

The legislature’s industry committee is scheduled to vote on a non-binding opinion on the reserve on Jan. 22 and the environment committee, which leads the parliamentary work on the proposal, is due to decide on its position on Feb. 24.

Under the commission’s proposal, the supply of permits will be reduced if there is an accumulated surplus of at least 833 million tons. If the surplus fell below 400 million tons, the EU would begin returning allowances to the market from the reserve.

Latvia proposed shortening to one year from two years the time lag between calculating the number of permits in circulation and transferring allowances into or releasing them from the reserve.