Mathew Carr
COPENHAGEN/BLOOMBERG

European carbon prices fell the most since February after the Copenhagen climate accord didnt set targets that would boost demand for permits.European Union carbon-dioxide allowances for delivery in December 2010 dropped as much as 8.7 percent to €12.40 on the European Climate Exchange in the first day of trading since the summit ended. The contract traded at 12.70 at 753 a.m. London time.

The agreed targets in the Copenhagen deal amount to a ""bunch of negotiation ranges"" that investors had already factored in, Trevor Sikorski, an emissions analysts for Barclays Capital, said in a phone interview Sunday after returning to London from the Danish capital. ""It seems to be below even our modest expectations.""

US President Barack Obama said the climate-change accord he reached with China and most of the 193 attending nations on Dec. 18 was an ""unprecedented"" first step to slow global warming.Environmental groups such as Friends of the Earth called it a failure because its not a binding treaty and the targets fall short of what the United Nations climate adviser said is needed to prevent catastrophic climate change.

Permits in the EU, which runs the worlds largest cap-and-trade system, closed down 6.8 percent last week as Copenhagen delegates bickered over targets and funding to fight climate change.Allowances for delivery in December 2010 have fallen 22 percent this year as the lack of progress on climate talks and recession reduced demand.

The UNs Certified Emission Reductions credits for delivery next year fell 7.6 percent last week to €11.83 on Londons European Climate Exchange. They are down .. 14 percent this year and hadnt yet traded Monday.
The US will probably cut its emissions by 14 percent to 17 percent from 2005 levelsby 2020, subject to approval in the Senate, according i to an information note circulated by European Union officials in Copenhagen along with the accord.

The strength of the carbon market ""hinges more on the US than anyone else,"" said Jos Delbeke, deputy director general for environment at the European Commission in Brussels, in a Dec. 18 interview hours after the accord was struck.""The impact on the carbon market is going to be marginal.""The EU said it will stick to its target of cutting emissions by 20 percent from 1990 levels, pulling back from an offer of 30 percent, because other countries didnt follow suit.

Prime Minister Fredrik Reinfeldt of Sweden, speaking for the 27-nation bloc, said EU leaders decided to stay at 20 percent. That will help drive EU prices lower, Sikorski said.The US is considering a law that may boost demand for so-called offset credits from the UN starting around 2012.

The credits, awarded to companies and investors from richer countries that pay for emission reductions in the developing world, can be used for compliance in the EU market.The two-week climate meeting, concluded a day behind schedule, failed to deliver most of improvements needed in the UN market, said Kim Camahan, a UN emissions-trad-ing researcher at the International Emissions Trading Association, a lobby group in Geneva. Its members

include Goldman Sachs Group Inc. and Royal Dutch Shell Plc.Changes agreed .for the UNs Clean Development Mechanism (CDM) were ""not decisive action to which the market can immediately react,"" Carnahan said by email.
UN envoys put off action on proposals for so-called ""standardized baselines,"" which would have made it easier for projects that reduce emissions more than industry benchmarks to win credits, according to a text approved in Copenhagen.

Projects are now approved on a case-by-case basis and must show they need credits to be feasible.
That approval process has produced a backlog, with 66 percent of 5,641 of the proposed projects that the UN received since 2003 waiting as of Dec. 4, according to data compiled by Bloomberg. The1 proposal for industry baselines would have meant more credits, traders said.

""I find it incredibly frustrating"" that countries can spend days discussing potential technological solutions to climate change such as synthetic trees while they ""punt critical issues like standardized baselines"" to a technical working group for a year, Carnahan said.

The UN carbon market has staff-ing shortages and needs more than six months to streamline approvals, Lex de Jonge, chairman of its regulatory board, said this month.""We are not going to come back on Jan. 1 and see a jump in the issuance,"" Alessandro Vitelli, director of strategy and information at IDE-Acarbon in London, said in an interview Dec. 19 in Copenhagen.

An appeals process, better communication between the CDM board and project developers, as wel) as smoother registration and issuance procedures may help the program boost productivity next year, he said.