Isra-Mart srl : European Carbon Permits Fall as Slow Economy May Sap Demand

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European Union carbon permits fell this week, tracking losses in wider commodity markets after Central Bank President Jean-Claude Trichet signaled slow economic growth.

EU emission allowances for December fell as much as 2 percent to 16.63 euros ($24.08) a metric ton on London’s ICE Futures Europe exchange, its lowest level since April 19. The contract traded as high as 17.45 euros this week as power utilities bought to hedge forward sales of electricity. It settled today at 17.05 euros, a 0.5 percent loss since April 29.

“There were drops across all commodities, Trichet wasn’t as hawkish as we expected on interest rates,” Andrew Ager, the London head of carbon and emissions at Prudential Financial Inc.’s Bache Commodities Ltd., said in an e-mail. “That could be a sign the outlook for growth isn’t strong and the economy is ticking along in a precarious state and we might see a weakening of some sectors.”

Factories and power stations under the European Union’s emissions trading system use the allowances to comply with carbon-dioxide limits. Prices can track oil markets, as they give an indication of future industrial productivity.

Crude oil tumbled below $100 a barrel in New York yesterday in the biggest decline in two years on concern that economic growth and fuel demand will drop. The benchmark oil contract erased some of those losses today after a better-than-expected U.S. jobs report. Some natural-gas contracts are linked to oil prices and so declines can lead to a switch in fuel for power generation. Burning gas emits about half the carbon dioxide of coal.

The premium of EU permits for 2013 over 2012 widened this week to 1.45 euros on May 3, its biggest gap on a closing basis since September 2009, exchange data show.

The European Commission, regulator of the EU carbon market, is finalizing rules this year for the third phase of the program, which begins in 2013 and runs through 2020. “There’s a significant disconnect between the phases. Phase three has a greater potential price risk,” as regulators decide on the rules, Ager said.