Carbon Price Hits Five-Month High

---

Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--Energy companies and the heavy industry sector can be expected to pay more for carbon permits in the coming months as a plan by the European Commission (EC) to restrict their supply has succeeded in forcing up the price.

Price for permits hit a five-month high of 6.50 euros ($8.58) last week, with some industry watchers predicting that prices are in for sustained growth, and could breach double digits by next year. The Emission Trading System (ETS) is the world's largest carbon cap-and-trade program. The scheme is the only mechanism in the EU for monitoring and tracking CO2 emissions and covers more than 11,500 power stations, factories and refineries in 30 countries, which are responsible for around half of the region's emissions. Since its inception in 2008, the system has suffered from an over-allocation of emissions allowances, which have seen carbon prices drop from a high of 30 euros ($40) in 2008 to less than 5 euros ($6.70).

At the end of last year, the commission received the green light for its controversial "back-loading" proposal, which would delay the release of about 900 million credits, in an effort to increase the cost of credits to industry. For additional information, see November 18, 2013, article--Breakthrough for Europe's Carbon Trading System.

Market-watcher ICIS Tschach believes the upswing will continue throughout this year and pass the 10-euro mark per credit by the end of the year--the first time since 2012.

"After all the volatility and exceptional trading activity in Q1 2014, we are seeing the effects of back-loading really start to take hold now" said Philipp Ruf, Lead Analyst, EU Carbon Markets at ICIS. "Next to the reduced auction volume, the appetite of industrials to sell banked length is rather muted while the demand from utilities seems constant. All these factors, together with the potential momentum derived from the policy discussion around the 2030 emission reduction target and the Market Stability Reserve, suggest a sustained bullish corridor for carbon prices."

Jan Frommeyer, Director of Market Analysis at ICIS, added: "Up to now, industrials have enjoyed a huge number of free allowances under the scheme and could easily cover their obligations and maybe even sell some allowances at a profit. Now the free allowances are scarcer, and most carbon-heavy industrials will face a shortage of allowances in the near future. That's not so risky with prices as low as they have been, but as they edge higher it becomes more and more of a problem."

The European Commission (E.C.) is under pressure to reduce the pressure on heavy industry to help stimulate growth in a sector that has been hammered by the recent financial crisis. In May, it released a draft proposal for a 2015-2019 carbon leakage list to the EU Climate Change Committee. It proposes that out of the 245 industry sectors examined, 175 of them will be entitled to get most of their greenhouse gas emissions allowances for free over the period. For additional information, see May 12, 2014, article - Europe Plans Free Carbon Permits for Heavy Industry.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.