* Short-term market impact seen limited
* Proposals for permanent solutions to low prices due
By Nina Chestney
LONDON, Nov 13 Prices for EU carbon emissions
permits closed 8 percent lower on Tuesday, after the European
Commission proposed the withdrawal of only 900 million permits
in its Emissions Trading Scheme (ETS) from next year to prop up
Speculative market participants who had been expecting a
greater number in the proposal helped drive up prices to an
eight-month high of 9.10 euros a tonne on Monday.
However, they switched to the sell side on Tuesday when the
number was released, traders said.
The benchmark contract for EU Allowances (EUAs) on ICE
closed at 8.37 euros ($10.64) a tonne, 7.8 percent
lower than the previous day's closing price.
The market was likely to remain volatile on Wednesday,
traders said, when the European Commission is due to publish a
report outlining more permanent solutions to low carbon prices.
Earlier this year, the Commission announced its intention to
withhold permits from the market temporarily - 400 million, 900
million or 1.2 billion units - in a process known as
On Monday, the Commission said the plan would push back 400
million allowances in 2013, 300 million in 2014 and 200 million
in 2015. The permits would be reintroduced to the market in 2019
Prices for carbon permits have been trading between 6 and 9
euros for most of the year due to an economic downturn which has
reduced demand for permits from industry and power companies,
and a more general over-supply of permits.
The ETS caps carbon emissions on more than 12,000 industrial
and power plants across the 27-nation bloc and governments are
allowed to sell a certain number of carbon permits each year
called EU Allowances.
Some experts and green groups say low prices undermine the
effectiveness of the scheme as it reduces participants'
incentive to reduce emissions.
The Commission plan to temporarily withdraw carbon permits
should only have a limited, short-term impact on prices,
"In the short term we expect to see a sideways trend in EUA
prices. In the medium to long term, however, prices should
stabilise and post further gains," said UniCredit analyst Heiko
However, the supply of new permits to the market continues
unabated, with a number of auctions scheduled between now and
the end of this year putting pressure on
Deutsche Bank analysts said a more permanent, structural
solution to the problem of permit over-supply is still needed,
otherwise prices will only fall again later when withheld EUAs
are reinserted into the market.
The Commission's withdrawal proposal now has to be debated
by EU member states, which are expected to vote on Dec. 13.
If the number is approved, it could push EUA prices back to
15 euros a tonne or more in the 12-18 month period after formal
adoption of the plan, Deutsche Bank said.