March 18, 2020 / 10:05 AM / in 16 days

Coronavirus pushes EU carbon permits to 16-month lows

LONDON (Reuters) - The benchmark European Union carbon permit price fell to its lowest since late 2018 on Wednesday as the spreading coronavirus was expected to shrink emissions from industry and aviation.

The rapid spread of the virus across the world has hobbled manufacturers and battered airlines. National leaders in the EU agreed on Tuesday to close the external borders of most European countries for 30 days.

The EU 2020 carbon price was trading 10.7% lower from the previous settlement at 16.35 euros a tonne at 1022 GMT, the lowest since Nov. 2018.

In a sign of dropping demand, European energy bourse EEX cancelled an auction of 3.1 million European carbon permits on Tuesday because the total volume of bids was insufficient.

Some traders feared a UK auction of 5.7 million permits on Wednesday morning might fail but it settled at 16.11 euros a tonne. That was lower than other recent auction results over 20 euros.

“Although the auction cleared it (the price) was low. We are in the midst of a sell-off,” a trader said.

The EU’s output of greenhouse gases is regulated by the Emissions Trading System (ETS), the bloc’s flagship policy to tackle global warming by charging for the right to emit carbon dioxide.

Under the scheme, industry, utilities and airlines flying to and from EU airports pay to buy permits if their CO2 output is higher than a cap or can sell them if they emit less.

Graphic: Benchmark EU carbon price at its lowest since November 2018, here

LOCKDOWN

“As the COVID-19 outbreak is now spreading rapidly in Europe, it will start to reduce emissions as lockdowns are put in place in multiple countries,” said consultancy Energy Aspects.

The European Commission said on Friday that the EU economy was expected to contract by 1% in 2020, compared to a forecast in February that it would grow by 1.4%.

“The new forecasts suggest an absolute drop in industrial emissions of at least 10 million–20 million tonnes in 2020 - provided industrial production falls in line with GDP,” it added.

When the 2008/9 financial crisis tipped the world into recession, industrial output slumped and the price of carbon plunged.

However, since then, reforms to the EU ETS to address oversupply helped to boost the price to nearly 30 euros a tonne last summer and prices were expected to continue growing. [CO2/POLL]

Analysts at Wood Mackenzie said: “Carbon emissions in 2020 will drop as a result of national responses, while the longer-term fundamentals of the energy transition remain in place.”

Reporting by Nina Chestney and Susanna Twidale; editing by Philippa Fletcher

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