UPDATE 3-EU capped emissions down 2.4 pct in 2011

Mon Apr 2, 2012 11:49am EDT

Related Topics

* EU capped emissions fall below expectations

* Carbon prices drop to record low

* Power sector down 3.1 pct, others off by 0.5 pct

* Germany emissions down 1.2 pct; UK off 7.2 pct (Releads with record low carbon price, adds UBS analyst quote)

By Jeff Coelho

LONDON, April 2 (Reuters) - Carbon prices plunged to record lows on Monday after data showing emissions in the European Union's main scheme to fight greenhouse gases dropped below expectations last year.

Carbon dioxide emissions in the EU's emissions trading scheme (ETS) fell by 2.4 percent in 2011 from 2010, prompting carbon prices to fall by more than 11 percent to well below 7 euros a tonne.

While the preliminary data published by the European Commission on Monday suggests the bloc is on track to achieve its 2020 climate target, it also confirms a fall in power production due to weak industrial output and a slowing economy.

Many analysts had expected a slight rise in emissions for the year.

"The fall was mainly attributable to lower power generation and stagnating industrial production," Matteo Mazzoni, an analyst at Nomisma Energia, told Reuters.

The EU ETS limits the carbon emissions of around 12,000 installations such as factories and power plants, covering nearly half of the bloc's emissions.

Benchmark carbon prices fell to a record low of 6.14 euros a tonne, surpassing its previous floor of 6.30 euros hit last December. Carbon prices are far below the level needed to spur green investment.

"We see more downside to the carbon price," Per Lekander, an analyst at UBS said. "Potential sellers have held off selling ahead of the yearly emissions data," he said in a report.

He added: "We believe that it will become increasingly clear over the next months that the ETS rules won't change and with this we see 3 euro/tonne as a likely price floor. This would be negative for power prices in particular in coal driven markets."

Power sector emissions fell 3.1 percent and all other sectors, such as cement, steel and glass, were down by 0.5 percent.

Among some of the major emitters, Germany showed a decline of 1.2 percent, UK emissions were down 7.2 percent, Italy fell by 0.9 percent but Poland grew by 1.5 percent. France showed the sharpest drop in emissions of 18.6 percent last year.

The scheme, the EU's main policy to fight global warming, also covers emissions from non-EU members Norway and Liechtenstein. Figures for Cyprus and Liechtenstein were unavailable on Monday, while one installation in Greece reported data.

SUPPLY THREAT

Almost 10,000 installations reported emissions of 1.71 billion tonnes, according to the data published on the European Commission website. Monday's numbers represent 77 percent of all installations covered under the scheme.

Installations that reported emission data for the past two years saw these fall to 1.7026 billion tonnes in 2011 compared with 1.7453 billion tonnes in 2010.

Carbon permits are handed out to installations in each reporting year. Each company must surrender enough allowances to cover its emissions by the end of April in the following year, otherwise fines can be imposed.

When 2010 ETS emissions data were released last April, carbon prices were trading around 17 euros a tonne.

Since the scheme started in 2005, there was only one year, 2008, when ETS emissions exceeded the cap. This has led to a surplus of emissions allowances, estimated by analysts at hundreds of millions in the 2008-2012 trading period.

The supply glut, coupled with the slowing EU economy, caused carbon prices to crash below 7 euros a tonne last December, prompting calls for some kind of supply intervention.

"The political conditions have never been better for policymakers to rescue the ETS from the twin legacies of over allocation and recession," said Damien Morris, senior policy adviser from the climate campaign group Sandbag.

"But the window is rapidly closing to fix the ETS before the next trading period commences in 2013," he said, referring to the 2013-2020 trading period.

On April 11, EU officials and lawmakers will discuss an energy efficiency bill that could order a 'set aside' of surplus carbon permits in the 2013-2020 trading period of the carbon scheme.

Most analysts expect some kind of market intervention, otherwise carbon prices would be trading lower than current levels. But a decision is unlikely to be taken until next year.

The European Commission will release final ETS compliance data on May 15. (Additional reporting by Andrew Allan, Michael Szabo and Nina Chestney; Editing by and Alison Birrane and James Jukwey)

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