Isra-Mart srl:Carbon permits rebound 5 pct on utility buying

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Utility buying sent prices for benchmark carbon emissions permits up to 5 percent higher on Tuesday, as profits from burning high-carbon coal rose.

German clean dark spreads for 2012 power generation, which signify profits from burning coal including the cost of emissions permits, passed 10 euros per megawatt hour on Tuesday, their highest level since the first quarter of 2010.

That's a powerful incentive for power plants to burn coal and buy emission permits called EU allowances (EUAs).

EUAs were up nearly 6 percent at 11.34 euros at 1215 GMT. Carbon offsets called certified emissions reductions (CERs) are also valid permits in the EU emissions trading scheme (EU ETS), and were up 3.4 percent at 7.90 euros.

CERs have halved in price in the last month, nearing record lows over the past few days, while EUAs are down 7 percent in the same period. Prices have fallen on dipping world economic prospects.

The EU ETS binds the emissions of about 12,000 factories and power plants.

"There has been increased utility buying. I think due to the dark spread being favourable," said one emissions trader.
A second trader said he had seen more utility buying this week and less activity from financial players whose recent selling had helped drive carbon prices lower.

An emissions analyst said confirmation last Friday of a German phaseout of nuclear power plants may also have signalled more interest in coal and therefore emissions permits.

"Last Friday the German nuclear phase-out became formal binding law," said Jan Frommeyer, managing director at Tschach Solutions.

"Some big utilities may have been forced to wait until this law was in place until they changed their hedging (strategy)."

The carbon price gains came despite a large new issuance of CERs. A U.N. panel handed out 9.2 million CERs last week, while the number of pending requests suggests 36 million credits could be dished out during August, U.N. data showed on Monday.

While clean dark spreads have risen, the equivalent gas margin (clean spark spread) has stagnated for much of this year, resulting in a 530 percent rise of the coal over gas power premium in Germany since January.

Because burning coal power emits more carbon dioxide than gas, utilities have to buy more EUAs per generated MWh to cover their emissions under the EU ETS.