UPDATE 1-EU carbon price falls to new record low

Wed Jan 23, 2013 12:19pm EST

Related Topics

* Prices fall to new record low of 4.60 eur/t

* UK says will only support backloading if conditions met (Adds comment from European Commission, UK gov't)

By Nina Chestney

LONDON, Jan 23 (Reuters) - The benchmark European Union carbon contract fell to a new record low on Wednesday, extending declines seen earlier in the week, mostly fuelled by indecision by EU governments on a plan to boost prices, traders said.

The EU carbon price fell 16 percent to 4.60 euros, before recovering slightly to 4.71 euros by 1653 GMT. Prices had already been falling this week, hitting a previous record low of 4.79 euros on Monday.

On Wednesday, E.ON'S chief executive said a plan by the European Commission to help boost prices, known as backloading, could fail to bring the desired effect, while Britain said it would only support the plan if certain conditions were met.

The EU Emissions Trading System (ETS) is central to Europe's efforts to prompt utilities and industry to go green.

The scheme has a glut of permits generated by low demand from utilities and industrial firms during recession.

To help boost prices the Commission has proposed temporarily withdrawing 900 million permits from the market and reinserting them in 2019-2020.

Officials from EU member states are meeting in Brussels this week to discuss the plan, while members of the European Parliament will also debate it.

However, the proposal faces opposition from heavy coal user Poland and indecision on behalf of Germany.

Unless Britain is willing to support backloading as an interim measure, it is very likely to fail.

The ETS is at risk of collapse if member states do not agree on the emergency rescue plan, the Commission's climate chief said late on Tuesday.

"People are worried about the meeting in Brussels because it still looks like many countries are undecided," an emissions trader said.

Britain said it would only formally support the plan if the EU executive tabled more detailed proposals for deeper structural reform of the market.

"First, with regards to the volume to backload the UK would have preferred a much more ambitious proposal. We would align ourselves with those member states calling for 1.2 billion allowances to be backloaded," the UK's Department of Energy and Climate Change (DECC) said in a statement.

"Second, the UK is seeking much more reassurance on the links between backloading and structural reform," it added, referring to more permanent solutions to reduce over-supply.

The easiest way to secure that link is for the Commsision to set out its next steps in a clear timetable, DECC said.

Alternatively, Britain is developing a proposal to see withdrawn permits return to the market later than planned, after 2020.

"This would require minor amendments to the Commission proposals for both the EU ETS directive and the auctioning regulation. However, it would also allow all concerned parties much more time to discuss and implement structural reform before the threat of a further price crash materialises," it added.

However, the European Commission downplayed Britain's statement.

"We are pleased to have such explicit confirmation that the UK is not only in favour of ambitious backloading but also strongly supports swift progress on structural measures as the second, necessary step in our efforts to address the problems of the ETS," a Commission spokesman told Reuters.

(Additional reporting by Barbara Lewis and Susanna Twidale; editing by Anthony Barker and Keiron Henderson)

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