Europe's carbon market bull run hits a wall
By Susanna Twidale
LONDON, Sept 14 (Reuters) - European carbon, the year's
best-performing commodity, suffered its biggest fall in a decade
this week after a surge in prices triggered a call for
government intervention and weak auction demand.
Losses by a Norwegian power trader that left a $133 million
hole in the Nasdaq clearing house's contingency plan added to
market jitters, analysts said.
Benchmark EU Allowances (EUAs) jumped 30 percent
in just four trading sessions, hitting a 10-year high above 25
euros a tonne, before a sell-off kicked in.
They were trading at 19.01 at 1318 GMT on Friday, off about
18 percent on the week.
After EUAs jumped to 25 euros, Poland said it was time for
the European Commission to act.
"The situation calls for intervention. We need to ask the
European Commission to look into it," Energy Minister Krzysztof
Tchorzewski told state-run news agency PAP.
"It wasn't the only factor but the call from Poland
certainly spooked the market," one carbon trader said, speaking
on condition of anonymity.
Poland is wary of high carbon prices as that adds costs for
its utilities, which generate most of their power from polluting
"It is the first call (for intervention) but I would imagine
that the Visgard bloc might follow suit," said Nick Campbell, a
director at consultancy Inspired Energy, referring to the Czech
Republic, Hungary and Slovakia.
The high prices slowed demand at Thursday's EU EUA auction,
however, with a cover ratio of 3.21, lower than recent sales and
a signal to traders that demand was dwindling.
Other negatives for carbon this week included Thursday's
unwinding of positions across the European energy complex after
losses by the Norwegian power trader.
"This will make a lot of market participants unsure about
trading schemes," said Martin Andreas Vik, an adviser to the
Norwegian Water Resources and Energy Directorate.
While analysts doubted Poland would be successful in
prompting the EU to act to curb carbon prices, the market
hitting 25 euros did reignite analysis of reforms set to start
next year, including the Market Stability Reserve (MSR), which
will remove some surplus EUAs from the market.
The EU's Emissions Trading System (ETS) charges more than
11,000 energy-intensive factories and power stations for every
tonne of carbon dioxide they emit.
It was set up in 2005 as part of EU efforts to cut
greenhouse gas emissions by 43 percent by 2030.
Yet the market has suffered from excess supply since the
financial crisis, a problem set to be addressed by measures such
as the MSR.
Market intervention could also take the form of the EU
actually returning surplus EUAs to the market in the event of
Reuters analysts estimated prices would have to hold at 25
euros a tonne for six months to meet intervention criteria under
article 29a of the EU's carbon market rules.
However, under article 29a, intervention to return
allowances would only be triggered if the price rise was not
rooted in fundamental reasons.
"It would be a tough one to argue that the EUA price rise is
purely speculative and not caused by the anticipation of the
supply squeeze due to the Market Stability Reserve," Thomson
Reuters carbon analyst Hege Fjellheim said.
"The language in the article is open to different
interpretations," Fjellheim said.
The European Commission declined to elaborate on how the
article would work.
One source at the Commission said it welcomed the stronger
prices and that conditions to trigger intervention have not been
(Reporting by Susanna Twidale, additional reporting by Alissa
De Carbonnel in Brussels; editing by Jason Neely)
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