Carbon Slumps Most in 11 Months as Allowance Demand Seen Cooling

Mar 28, 2014 1:18 pm ET

March 28 (Bloomberg) -- Carbon plunged the most in almost a year amid speculation that European Union emissions data will show greenhouse-gas output dropped more than expected in 2013, reducing demand for pollution rights.

Carbon futures for December fell as much as 29 percent, the biggest one-day drop since April 2013, on the ICE Futures Europe exchange in London. Trading volume in the contracts more than doubled to a record this week, making this the busiest quarter since carbon futures started in 2005.

Factories and power stations in the 28-nation bloc are due to release next week data on their emissions for 2013 as the U.K. posted a bigger-than-expected drop in its carbon output yesterday. Futures had climbed to a 15-month high this month before the EU started postponing, or backloading, the sale of some permits in an effort to ease a permit glut and buoy prices in its emissions trading system.

The U.K. data “provided a catalyst for traders to sell,” Matthew Gray, an energy analyst at Jefferies Group LLC in London, said by e-mail. It “reminded the market that amidst the implementation of backloading, the ETS remains a deeply ineffective piece of public policy.”

Front-year carbon fell to as low as 3.71 euros ($5.11) a metric ton, the cheapest since July 2013, ICE data show. The contract last traded 16 percent lower at 4.42 euros as of 4:59 p.m. in London. December futures volume reached 84 million tons, a record for a front-year contract. The contract lost 29 percent from a week earlier, the biggest weekly loss since April 19.

Emissions Data

Data from more than 12,000 installations covered by the EU’s emissions-trading system will be made public on April 1, according to a statement on the commission’s website.

Power stations in Britain cut their carbon output by 8 percent last year, according to provisional data from the government’s Department of Energy & Climate Change in London. High U.K. power prices may have spurred energy efficiency and lower consumption, Matteo Mazzoni, an analyst at Nomisma Energia Srl in Bologna, Italy, said yesterday. He expected a 6 percent decline in U.K. utilities’ emissions.

Under the EU’s 34 billion-euro cap-and-trade market, pollution rights are auctioned or handed free to factories and utilities that must have enough to cover their emissions or pay fines. Prices fell from almost 30 euros in 2008 as the financial crisis damped industrial demand, reducing the penalties for burning fossil fuels.

“It is probably too early to write off the impact of backloading given the process is only just starting,” Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd. in London, said by e-mail.