Europe’s Pollution Price Gets an ‘Epic’ End-of-Year Squeeze

(Bloomberg) -- European Union permits to pollute got a boost Wednesday that could push the permits to a record they’ve threatened to breach several times this year.

The European Commission said that auctions of the permits will be delayed until as late as early February from the typical start of January. That will extend by weeks the normal holiday period at the end of the year when governments don’t hold auctions.

“Even with the normal three-week shutdown we see upward pressure on prices. To extend that by a month is pretty epic,” Tom Lord, head of trading and risk management at Redshaw Advisors Ltd., said. “We could quite easily see carbon climb over 30 euros, perhaps even busting the all-time high at 31 with the right conditions during this auction shutdown.”

EU carbon surged as much as 5.6% before trading at EU27.25/ton by 1:35 p.m. in London.

The technical glitch is happening amid a pair of potentially bullish events for carbon -- the roll out of a coronavirus vaccine and a successful trade deal between the U.K. and the EU.

That means the change to the auction schedule could boost the carbon price back above 30 euros a ton, a level it topped twice this year before falling away.

“It could ensure that we will get to 30 euros per ton sooner rather than later,” Jahn Olsen, a carbon analyst at BloombergNEF, said. “But it won’t have any impact on medium to long term supply/demand balance.”

Still, the cut to supply could be a taste of what’s to come for the carbon market, as the EU gradually reduces the amount of permits put out into the market.

“The question is: how high will prices go,” Ariel Perez, head of environmental products at Hartree Partners, said.

©2020 Bloomberg L.P.