EU carbon drops on energy market turmoil

By Michael Szabo

LONDON (Reuters) - European carbon futures dropped four percent on Monday as turmoil hit the global energy markets, traders said.

Lehman Brothers shut down its carbon desk after the bank went into bankruptcy protection, a source close to the company told Reuters.

The U.S. investment bank filed for Chapter 11 protection on Monday while Merrill Lynch, also plagued by toxic, mortgage-related debt, agreed to be bought by Bank of America. Merrill's carbon desk was open as usual on Monday, another source familiar with the matter said.

European Union Allowances for December delivery lost 85 cents or 3.6 percent at 23.05 euros a metric ton. Volume was healthy at 1,879 lots traded.

"Everything's off today. Coal's come off massively...but carbon hasn't really gained much support from that," an emissions trader told Reuters. Historically, coal prices are negatively correlated to carbon.

"Maybe it'll put the brakes on carbon in terms of how far it drops ... (EUA's) have some good support around 23.00 euros."

API2 coal for delivery in Q4 lost some $7 at around $160.50 a metric ton, according to globalCOAL.

Crude oil tumbled by more than $4 to $97 a barrel on concerns over the U.S. financial system and signs Hurricane Ike may have spared key U.S. energy infrastructure.

German Cal '09 baseload power forwards lost more than two euros to around 77 euros per megawatt hour.

Benchmark CERs, the emissions offsets traded under the Kyoto Protocol's Clean Development Mechanism (CDM), also lost close to three percent at 19.20 euros a metric ton.

Lehman Brothers has stakes in up to 10 projects in its CDM portoflio, one of the sources told Reuters.

"There are some very good projects in our pipeline," he said.

The projects, mostly located in China, are expected to generate 10 million-12 million CERs by 2012. The source said the projects are gold standard and none are involved in the destruction of hydrofluorocarbons (HFCs), a lucrative trade considered controversial by many in the emissions market.

(Editing by Anthony Barker)