Cost of Pollution Reaches Highest In a Decade In Europe
Cost of Pollution Reaches Highest In a Decade In Europe
(Bloomberg) -- Carbon pollution allowances soared to their highest level since 2008 after the European Union’s move to ration supply stoked concern that a shortage will unfold in the months ahead.
Futures prices are poised to more than double along with a tightening of supply in the traded market, Berenberg Bank said Tuesday. The cost of those allowances has already more than doubled in the past year as the EU cut the amount sold in auctions by 40 percent from the start of 2019, addressing a glut that had weighed on prices through 2017.
Higher carbon costs can spur technological innovation and roil energy markets, driving up power prices across Europe and giving utilities an incentive to burn more natural gas than coal. The rising emission prices will stoke concerns by industry and consumer groups about the expense of energy across Europe. German, French and British wholesale power prices already are trading well above their five-year average.
Steelmaker ArcelorMittal said earlier this month the region’s carbon market and other greenhouse-gas cutting measures could force it to “incur increased capital and operating costs.” BASF SE says higher energy and carbon prices represent key risks for the chemical maker.
Other companies, such as clean-energy producers, are benefiting from rising carbon. French nuclear generator EDF SA rose the most in almost a month on Wednesday as the jump in permit prices boosts the attractiveness of non-fossil-fuel generation such as that produced by atomic reactors.
The decline in supplies will be exacerbated if manufacturers stockpile permits for future years instead of selling their spare allowances. At the same time, demand from financial investors such as hedge funds has increased.
Carbon is also advancing along with the price of gas on the Dutch trading hub, improving the economics of using coal for power generation. Anything that spurs consumption of the dirtier fuel can increase the value of emission permits.
What Bloomberg Intelligence Says |
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| “The positive impact of carbon’s rise on EU power prices could be partly offset by China’s plan to cap coal imports this year,” which could push coal-and-electricity prices lower --Elchin Mammadov, European utilities and energy analyst. Click here to see utilities industry dashboard |
The gain in emission permits comes as Britain’s exit from the EU looks set to be delayed by as long as a year. Confirmation of a soft Brexit or a long extension may boost prices. That’s because a no-deal scenario might prompt U.K. factories, power stations and airlines to sell spare emission allowances held for future years, causing prices to plunge.
Option volumes in the greenhouse gas program are also surging. Options trades are frequently hedged in the futures market.
Carbon futures for December climbed as much as 5 percent to 26.80 euros ($30.22), the highest since July 2008, before trading at 26.60 euros by 11:51 a.m. in London on ICE Futures Europe.
To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net
To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson
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