Europe’s Carbon Prices Surge to Fresh Records on Tight Supply

(Bloomberg) -- U.K. and European Union carbon permit futures rose to a fresh record-high Wednesday as surging natural gas prices increased the appeal of burning dirtier coal for power generation.

EU carbon futures gained past the key 90 euros ($102) a ton marker, as higher gas prices drove power generators to switch toward more carbon-intensive fuel. Even with rising pollution-permit costs, it’s still more profitable to burn coal for power than gas.

“I don’t see anybody selling right now,” said Elvis Pellumbi, chief investment officer at CF Partners, an energy and environmental market trader and adviser. “The technicals are saying, ‘buy dips’.” 

EU carbon permits rose as much as 5.7% to 94.62 euros a ton. Futures are up about 170% from a year ago, with speculators piling on bets that demand for pollution allowances will increase to meet the bloc’s climate goals and as nations use more coal. The equivalent U.K. contract rose as much as 4% to 85.95 pounds a ton.

The cancellation of Tuesday’s daily auction on the European Energy Exchange AG due to a technical glitch added upward pressure on EU prices. Wednesday’s sale cleared at a record 91.61 euros. 

Benchmark German electricity prices also rose on Wednesday, supported by rising gas. German year-ahead power rose as much as 5.7% to 138.50 euros a megawatt-hour, while month-ahead prices increased as high as 184 euros on EEX.

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