EU says U.N. carbon market link to start October

BRUSSELS (Reuters) - The European Union's executive Commission plans to link an EU market in carbon emissions permits with a related U.N. trading scheme in the first half of October, it said in a statement on Thursday.

The connection will allow European companies to use carbon offsets, earned from funding emissions cuts in developing countries, to meet EU caps on greenhouse gases.

Uncertainty regarding the timing of the electronic connection with carbon offsetting under the U.N.'s Kyoto Protocol had sparked market jitters of a default on a key futures contract which falls due in December.

The Commission statement hinted that the October patch between the EU and U.N. carbon registries, called the CITL and ITL respectively, may not be set in stone.

"Preparations are on schedule and, following satisfactory completion of the remaining preparatory work, the linking of EU's registries and CITL to the U.N.'s ITL can start in the first half of October this year," it said.

"The EC is prepared to meet this timetable."

The EU's flagship scheme to combat climate change allows heavy industry a fixed quota of permits to emit the main man made greenhouse gas carbon dioxide.

Companies must either keep to that limit, buy permits from others below their EU cap, or fund emissions cuts in developing countries, earning offsets called CERs in exchange.

If the link is not up and running by December 1 then most CER contracts have a clause allowing settlement to roll over until the patch is complete.

"It was anticipated, but it strengthens confidence," said a carbon trader, on Thursday's news. "It's psychological, it's sentiment, it looks like it's really going to happen this time."

Thursday's news could help to continue to diminish a spread between CERs and EU emissions permits as confidence rises that the two are now fungible. CERs were up 5 percent on the day in lunchtime trading.

(Reporting by Ingrid Melander in Brussels and Gerard Wynn in London; Editing by James Jukwey).