Looking for a Commodity That’s Rising? Try Pollution Permits

Alessandro Vitelli There’s one corner of the commodities markets bucking the slump that’s sent raw material prices tumbling: pollution permits. Prices in Europe’s market for carbon emission allowances, where companies trade the right to release the greenhouse gas into the atmosphere, gained 10 percent this year after the European Commission took unprecedented steps to prop up the market, attempting to curb a record glut. The regulator’s supply squeeze will help carbon gain another 11 percent by the end of December, according to consultants Energy Aspects Ltd. and Vertis Environmental Finance. Compare that with crude’s 30 percent slump since its June peak and Citigroup Inc.’s forecast of a further 30 percent drop. Or ABN Amro Bank NV’s bearish forecast for gold, predicting a 29 percent slump by the end of next year. There’s a key difference, of course. Unlike other commodities, supply in the $53 billion market is created by lawmakers. The Commission issues or sells permits to about 12,000 factories and power stations, which must surrender allowances matching their pollution each year. The 10-year-old system forms part of Europe’s response to the threat of global warming. “It is an explicit aim of European Commission to see higher carbon prices,” Bernadett … continue reading

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Source: CTRM Center

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