EU carbon back below 14 euros as gas, power drop

LONDON (Reuters) - European Union carbon permit prices, pressured by weak prices for German power and UK gas, fell back below 14 euros a tonne on low liquidity on Wednesday afternoon, a week after the futures hit a three-month low.

EU Allowance futures for December delivery dropped to 13.90 euros a tonne by 1312 GMT, down 33 cents or 2.3 percent, after treading above 14 euros through most of the day.

Volume was light at around 7,900 lots traded by 1415 GMT.

"Volume is very weak. With power and gas prices dropping and hardly any utilities buying ... we could head back to below 13.80 euros," said one trader.

Dec-10 EUAs bottomed at 13.61 euros last Wednesday, the lowest level since April.

Another trader said the main players in the market at the moment were banks and speculators trading on technicals, adding prices were more volatile than normal due to low liquidity.

Daily screen volumes on the European Climate Exchange's Dec-10 contracts were averaging around 9,000 lots in June and July, compared with over 14,000 lots a day in May.

Benchmark Dec-10 CER futures were also weaker, shedding 19 cents or 1.6 percent to 11.88 euros a tonne, trading below 12 euros for the first time since last Thursday.

The Dec-10 EUA-CER spread narrowed further to near 2 euros.

UK day-ahead gas lost 2.3 pence or 5.4 percent to 40.5 pence per therm as abundant supply came from liquefied natural gas (LNG) terminals and via pipeline from Norway, traders said.

Prices were down some 15 percent since last Wednesday.

German Calendar 2011 baseload power trading on the EEX shed 46 cents to 49.45 euros per megawatt hour. Prices fell below 50 euros on Tuesday for the first time since April.

Crude oil futures turned negative, falling to $77.25 a barrel after spending most of the day higher, after EIA data showed an unexpected build in U.S. inventories.

The UN climate agency, meanwhile, for the first time detailed contingency options if the world cannot agree a successor to the Kyoto Protocol, whose present round is set to expire in 2012 with no new deal in sight.

Kyoto's Clean Development Mechanism (CDM) may end from 2013 unless the world can agree and put in force a new round of carbon emissions targets before then, a UN paper said.

"A gap would frustrate the purpose of the CDM and argue against its continuation," if fulfillment of the purpose of the CDM were considered mandatory to help countries meet their carbon caps, the paper said.

"Under this interpretation, no new CDM project activities could be validated or registered, emission reductions or removals that occurred after the first commitment period could not be verified, and corresponding CERs could not be issued."

The document reflects the stuttering pace of UN talks to extend or replace Kyoto and disappointment at the outcome of a summit in Copenhagen last December. (Reporting by Michael Szabo; Editing by Jane Baird)