EU nations hand out 535 million free carbon permits for 2016

LONDON (Reuters) - European nations have handed out a combined 535 million free European Union carbon permits to industry to cover 2016 emissions, the European Commission said on Thursday.

The allocation of EU Allowances (EUAs) will add supply to a market already awash with permits and could put more pressure on carbon prices, which are now below 5 euros a ton.

Germany and France handed out the most permits, at 129.6 million and 73.2 million respectively, while five countries including Spain and Italy have yet to distribute any of the free permits, an update on the Commission’s website showed.

The EU Emissions Trading System caps the emissions of more than 11,000 power plants, factories and airlines, forcing them to surrender one carbon permit for every ton of carbon dioxide emitted annually by April of the following year.

Industrial firms regulated by the scheme, such as steel and cement makers, will get a total of around 6.6 billion free allowances between 2013 and 2020 to help them compete with rivals in other countries that have looser environmental rules.

The amount given is based on historical production forecasts and a fall in industrial output since the 2008 recession means many are left holding a surplus of credits they can sell.

The Commission said it will publish its next update on the progress of the free allocation on March 17.

Reporting by Susanna Twidale; Editing by Mark Potter and David Holmes