EU Carbon Permits Rise Above 40 Euros as Speculation Surges

(Bloomberg) -- Carbon futures rose to a record 40.12 euros ($48.67) per metric ton as investors bet that prices will keep rising as the European Union tightens its climate goals.

The more than 20% gain this year has taken some traders and analysts by surprise and the increase seems to be bolstered by financial speculators rather than by any particular news about tightening supply that would push the market upwards.

EU carbon allowances fell below 40 euros to trade at 39.81 euros a ton at 9:20 a.m. in London.

“We expect the price to be above 30 euros and to head upwards as the market gets tighter in coming years, but to hit 40 now I guess just shows that people are pumped,” said Emily Jackson, a carbon analyst at BloombergNEF. “The market isn’t responding to fundamentals at the moment.”

In December, carbon futures broke through 31 euros beating a record held since 2006. It has taken just two months to surge to the 40-euro level.

Analysts had expected carbon to gain this year, but few saw such a quick trajectory to 40 euros. But last week Bloomberg News reported that a number of hedge funds are betting carbon will rise much faster, to as high as 100 euros this year or next. That helped set off a 16% gain last week.

The speculative buying has added to already tight market conditions to start the year. Auctions began weeks later than normal in January, leaving a long period without any additional supply in the market.

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