EU Carbon Rises to 2-Year High as Holidays Cut Supply

(Bloomberg) — European Union carbon allowances rose to the
highest in more than two years as Christmas holidays and a halt
of almost-daily auctions damped supply.

The benchmark front-December contract advanced 2.4 percent
to the highest since Dec. 20, 2012 on the ICE Futures Europe
exchange in London. The volume traded was 30 percent of the
three-month average.

Allowances increased 48 percent this year as the bloc began
withholding about half a year’s supply to help deal with a glut
that built up as renewable-energy subsidies encouraged a surge
in clean generation with priority access to power grids.
Lawmakers are considering additional measures including a
permanent reserve to further erode the accumulated oversupply.

Higher German power contracts and the “missing supply from
auctions” helped make carbon more expensive, Bernadett Papp, an
analyst at Vertis Environmental Finance Ltd. in Budapest, said
today in an e-mailed response to questions. “The high
volatility due to the Christmas holidays can have the result of
reaching new highs.”

The December 2015 benchmark rose as high as 7.36 euros
($8.97) before settling at 7.34 euros with 4.6 million tons
trading. Volume of prompt contracts advanced 39 percent to 1.5
million tons, or 33 percent of front-December trading. For all
of last week, the figure was 3.1 percent.

The high portion of spot trading indicates demand for
compliance may be stronger than supply, said Louis Redshaw,
founder of Redshaw Advisors Ltd. in London, which trades on
behalf of factories.

There are few sellers and “not all utilities bought
everything they needed” before auctions stopped on Dec. 16,
Redshaw said today in an e-mailed response to questions.
Auctions on the European Energy Exchange AG in Leipzig, Germany,
resume on Jan. 8, which could push carbon contracts lower,
Bloomberg New Energy Finance said yesterday.

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

To contact the editors responsible for this story:
Lars Paulsson at
lpaulsson@bloomberg.net
Stephen Cunningham, Charlotte Porter

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