UPDATE 1-U.N. carbon credits fall to new record low

Mon Jul 30, 2012 7:46am EDT

* CERs fall to new record low of 2.67 euros a tonne

* Drop extends last week's falls on EU plan to limit supply (Adds comment, background)

LONDON, July 30 (Reuters) - Benchmark United Nations' carbon permits fell 7 percent to a fresh record low on Monday, taking their lead from lower prices for European Union emissions allowances and extending losses made last week.

"This is a technical move as well as continued fall-out from last week's EU announcement," a carbon trader said, referring to a slide in carbon permit prices last week due to the lack of detail in a long awaited European Commission plan to delay the auction of new EU allowances (EUAs)

The Commission presented the proposal to bolster its emissions trading scheme (ETS) by reducing a massive overhang of surplus allowances and urged member states to hurry it through by the end of the year.

There were no firm numbers in the Commission's draft proposal, which disappointed traders, but a Commission analysis has presented three options - withholding 400 million, 900 million or 1.2 billion allowances over the first three years of the market's next phase.

On Monday, the benchmark contract for U.N.-backed permits, called certified emissions reductions (CERs), fell 6.97 percent to 2.67 euros ($3.30) a tonne at 1043 GMT. Volume was low at 575 lots traded.

EU allowances (EUAs) for delivery in December 2013 fell by 3.76 percent to 6.66 euros a tonne, narrowing the spread between the two benchmark contracts to 3.99 euros.

The EUA contract dropped below a 6.85 euro support level earlier on Monday which prompted selling, he added.

Last Friday, the contract's 15-day moving average went beneath its 40-day moving average which was also a bearish technical signal.

Both CER and EUA prices have scope to lose further ground, traders said. EUAs could potentially drop to their record low of 5.99 euros, which they hit in April, they added.

Both EUA and CER prices have lost a lot of ground over the past year and are well below levels needed to spur low-carbon investment and discourage pollution.

CER prices have lost around 70 percent of their value over the past year, beset mainly by a supply glut and flagging demand for carbon permits due to a slowing European economy.

CERs are traded under the U.N.'s Clean Development Mechanism, which was worth $22 billion last year. Under the scheme, governments and companies in developed countries can earn carbon credits by investing in low-carbon projects in developing countries. They can use the credits to achieve their Kyoto targets.

Most of the demand for CERs comes from the EU ETS, the world's biggest carbon market, which itself is oversupplied by over 1 billion carbon permits. Many analysts expect the EU scheme to be oversupplied at least through 2020. ($1 = 0.8084 euros) (Reporting by Nina Chestney; Editing by Anthony Barker)

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