Tilt/EU CO2 Market May Face Shortage Without More Supply (Update1)

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EU CO2 Market May Face Shortage Without More Supply (Update1)
2010-11-12 17:05:39.515 GMT

(Adds analyst comment in fifth paragraph.)

By Mathew Carr
Nov. 12 (Bloomberg) -- The European Union's carbon market
will have a shortage of 190 million metric tons of allowances in
2011 after the regulator said it probably won't auction permits
for phase three next year, said an analyst at Bloomberg New
Energy Finance.
The market will be 80 million tons short in 2012 even after
the sale of 300 million tons from a reserve to spur clean-energy
projects, said Konrad Hanschmidt, an analyst at New Energy
Finance in London. Total supply in 2011 is expected at 2.14
billion tons and 2.4 billion tons a year later.
New Energy Finance estimated that the European Commission,
the Brussels regulator, may sell an additional 100 million tons
in so-called "early auctions" in 2012, taking the total phase-
three sales and auctions to 400 million tons before Dec. 31,
2012. An earlier NEF forecast was for 500 million tons,
Hanschmidt said.
The regulator is seeking to smooth prices over the next
five years as power utilities demand allowances three years
ahead to match forward-power sales. The third phase of the
market, the world's largest greenhouse-gas-reduction program by
trading volume, runs for the eight years starting 2013.
An additional 100 million tons of early auctions "could
tilt the market balance" in 2012 to oversupply because that
year has a shortage of only 80 million tons, Hanschmidt said.

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--Editors: Stephen Cunningham, Randall Hackley.

To contact the reporter on this story:
Mathew Carr in London at +44-20-7073-3531 or

To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net