LONDON - European carbon prices dived 30 percent on Wednesday to an 11-month low after traders said France had joined a clutch of countries which had undershot 2005 emissions limits set by an EU trading scheme.
The drop has ended a carbon bull-run which has helped force power prices up to record levels, inflating energy bills and angering consumers across Europe.
Wholesale power prices, which set the benchmark for final bills, fell sharply on Wednesday, tracking carbon.
"There's been a sentiment change overnight," said one UK-based trader of carbon markets. "Prices are in freefall."
The French Environment Ministry was not immediately available for comment.
The EU trading scheme sets a cap on total emissions by smokestack industries of heat-trapping carbon dioxide (CO2) -- widely blamed for climate change -- and requires companies to have a carbon credit for every tonne of emissions.
If emissions are below the cap, companies can sell their surplus carbon credits, dampening demand. Emissions reports this week had taken the floor from under carbon.
Carbon credits for December 2006 delivery in early evening trading were down 30 percent on the day at 19 euros, down from Tuesday's close of 27.3 euros and last week's peak of over 30 euros.
In the wholesale power market, forward contracts for next winter in the UK dropped 3.35 pounds to 67.75 pounds a megawatt hour, a two week low. Prices also fell sharply in France and Germany.
"Carbon has crashed off and the power has taken a hit on the back of this," said a trader for a UK utility.
In addition to France -- Estonia, Belgium, Czech and Netherlands have all announced surplus 2005 carbon credit allowances this week.
But the countries expected to be most short of carbon credits -- Britain, Germany, Italy, Spain and Portugal -- are yet to report their emissions, prompting a third trader to caution against an over-reaction.
"People are reacting to half the news," he said.
SURPLUS
French carbon dioxide emissions were 11.6 percent below the country's quota under the EU Emissions Trading Scheme, traders said on Wednesday, citing data source Point Carbon.
The Netherlands said on Tuesday 2005 CO2 emissions by industry affected by the EU ETS were 80.4 million tonnes, eight percent below the annual cap.
Meanwhile affected Czech industries emitted 82-83 million tonnes of the greenhouse gas last year, about 15 percent below the national cap, an Environment Ministry official said, also on Tuesday.
Carbon credit prices are entering a volatile period over the coming weeks as more EU member states reveal for the first time emissions in 2005 -- the first year of the scheme -- as well as the size of their planned credit allocation for the second phase of the scheme from 2008-2012. -- Additional reporting by Stuart Penson
Story by Gerard Wynn
REUTERS NEWS SERVICE
