* 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 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 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
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
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
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)