EU Set-Aside May Boost CO2 Price by 10 Euros, Barclays Says
The European Union option of setting aside as many as 800 million surplus carbon allowances is “unwelcome” regulation that may add 10 euros ($13.66) a ton to prices in 2013, Barclays Plc said.
The EU carbon market, where benchmark prices are up 14 percent from a year ago, has an oversupply of about 460 million allowances for the five years through 2012, analysts led by Trevor Sikorski at the Barclays Capital investment bank in London said today in an e-mailed note. Power utilities will need much of that extra supply to hedge their forward sales of electricity over the next few years, they said.
Removing some permits and setting them aside as indicated in a leaked EU planning document would probably mean a “tight market, greater price volatility and an almighty scramble for allowances,” Sikorski said. The bank forecast on Feb. 14 that EU prices will be 30 euros a metric ton in 2013. A 10 euro jump would represent a surge of 33 percent.
EU carbon for December rose 0.6 percent to 15.08 euros a metric ton on the ICE Futures Europe exchange in London as of 2:20 p.m. It traded earlier today as high as 15.14 euros a ton, the most since Feb. 3.
The EU’s consideration of withholding permits has “some deeply disturbing elements,” Sikorski said. It indicates the Brussels-based European Commission is seeking to manipulate rules to bring about desired prices, he said.
“Such behavior is the opposite of what is required to instill the market with certainty, and such proposals do leave participants wondering just how to value carbon,” he said.
The proposal has insufficient detail and seems to work around lawmakers’ preference to keep the bloc’s emissions target at 20 percent below 1990 levels by 2020 rather than increasing it, Barclays said. “All in all, the incident is an unwelcome regulatory intervention into the market.”
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