EU carbon prices hit seven weeks high

LONDON: European carbon prices hit a seven week high on Wednesday in thin trade and on the back of an absence of government auctions of permits.

The December 2014 EU Allowance (EUA) contract hit 5.09 euros during the session, its loftiest level since Oct. 30.

The benchmark futures fell back to 5 euros at the close, 1 cent down on Tuesday's settlement.

"Prices moved up and down in very thin volume but it looks like the market is more comfortable around five euros," a trader said, adding that the lack of a government auction on Wednesday had allowed prices to spike.

Governments have auctioned some 826.2 million spot permits in near-daily auctions during 2013 but the last of this year's sales was held on Tuesday.

"The absence of government auctions this year could continue to provide a support, however thin trading volumes and less demand may limit the upside," analysts at Thomson Reuters Point Carbon said on Wednesday in Reuters European Power, Gas and Carbon Forum.

Traders said the market was little moved by news that Britain is likely to be the first country to hand out its free 2013 permits after the government said Wednesday it expects to distribute them in early January.

"The UK is one of the larger countries to allocate but it doesn't really make that much difference now whether it will come in December or January," the trader said.

Traders in the carbon market closely watch the government allocations because they will mean more supply coming to a market already drowning in permits, and could put pressure on carbon prices.

Britain is the second largest emitter in the EU and said its industry will receive almost 69 million permits in 2014.

Liquidity in the carbon market was thin, with around 8 million of all vintages changing hands across the main exchanges, compared with a daily average so far in December, including auction volume of around 33.6 million EUAs.