Carbon up 2.7pc on EU rescue package rally

LONDON: European carbon prices rose 2.7 percent on Thursday, riding bullish sentiment that swept global financial markets after EU leaders made progress on a euro zone rescue package.

At 1505 GMT, the ICE ECX December 2011 EUA contract was valued at 10.39 euros, up 27 cents on the previous close and wiping out Wednesday's losses.

The contract opened at 10.20 euros and climbed to 10.50 euros during trade of around 16 million permits.

But to put the rally in perspective, carbon remains far below the 14.26 euro daily average price for the contract this year.

Thursday's rise came after overnight talks between euro zone leaders produced a deal to save the euro, including forcing private banks and insurers to write off 50 percent of Greek debt in return for $30 billion of sweeteners in the form of credit enhancement.

They also agreed to scale up the EU's bail-out fund to 1 trillion euros and recapitalise Europe's banks.

However, traders said carbon's gains were muted due to an over-supply of EU allowances and U.N-backed carbon offsets.

"We are still around 2.5 percent up but compared with the other markets we could have gone much higher. We have to acknowledge that the selling pressure is coming from CERs," a trader said.

In the secondary market for UN-backed carbon credits, the December 2011 CER contract traded at 6.98 euros at 1505 GMT, up just 1.3 percent on the previous day's 6.89 euros close.

This left the EUA-CER swap at 3.43 euros at 1515 GMT, 18 cents wider than Wednesday's closing level and close to a five-week high of 3.48 euros.

"CERs will have a hard time coming up with the entire oversupply hanging round. The deal in the euro zone doesn't really help their story," another trader said.

A record 263 million CERs have been handed out in 2011, while one industrial gas project was awarded a bumper issuance of 2.7 million CERs on Wednesday, more than double the 876,667 average daily awards of credits so far in 2011.

Meanwhile, other energy prices soared, with front-month Brent crude oil trading on ICE up 2.7 percent to $111. 90 a barrel at, a $2.99 increase on Wednesday's $108.91 a barrel close.

Global stock markets were also up on the back of the news, with the UK's FTSE 100 index 2.6 percent higher at 1500 GMT, while Germany's DAX leapt around 5.1 percent.

Copyright Reuters, 2010