EU Carbon Permits Drop to Record Low as European Debt Crisis Trims Demand

By Mathew Carr – Nov 23, 2011 11:09 AM MT

European Union carbon permits dropped to the lowest since 2009 amid concern that the region’s sovereign-debt crisis is hurting economic production.

Prices for the December 2011 contract declined as much as 8.2 percent to 8.35 euros ($11.15) a metric ton on London’s ICE Futures Europe exchange, the biggest drop since June 24. They were at 8.44 euros at 5:32 p.m. in London, the lowest close since the contract started trading in 2005. In February 2009, the benchmark December contract for that year fell to 8.05 euros a ton.

Factories with spare allowances may also be selling today, said Richard Chatterton, a London-based analyst at Bloomberg New Energy Finance. “The combination of multiple supply side fears and simply not enough demand from utilities means prices have little support,” Chatterton said by e-mail.

The EU program, the world’s biggest greenhouse gas market, will be oversupplied by 212 million tons of carbon dioxide next year, or 9.1 percent of expected emissions of 2.3 billion tons, according to a New Energy Finance model.

Falling prices together with oversupply of carbon permits in Europe may reduce the incentive for companies to cut emissions. As factories slow operations there is less need to buy extra permits to comply with the system’s rules. Surplus permits can be held over for use in the third phase of the market, which begins in 2013.

Weaker Demand

Carbon allowances may drop as low as 3 euros because of weaker demand and “staggering” supply, Per Lekander, an analyst in Paris for UBS AG, forecast Nov. 17. Barclays Capital said Nov. 21 permits may drop below 6 euros, assuming there is another recession. United Nations credits, which can be used for compliance in the EU, plunged as much as 8.8 percent today to a record 5.84 euros.

Odin Knudsen, the JPMorgan Chase & Co. managing director for environmental markets, resigned last month as the largest U.S. lender scaled back its climate-related practice. Knudsen, 68, left by mutual agreement after it became clear the U.S. was not going to join a global system to trade carbon emissions, undermining the bank’s business plans, he said in a Nov. 21 phone interview.

“We’d all been geared up for the U.S. coming on board at some point,” Knudsen said. “The market pretty much died out.”

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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