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imageLONDON: European carbon prices edged lower in thin trade on Monday ahead of an increase in supply from government sales of carbon allowances.

Front-year EU Allowance (EUA) futures closed at 6.34 euros, down 4 cents on Friday's settlement.

Liquidity was poor with around 4 million allowances of all vintages changing hands across all platforms as many traders were absent from their desks due to a national holiday in Britain.

"The biweekly UK auction on Wednesday as well as the prospect of auction volumes going back to pre-August level in September could slow down the upward trend we have seen recently," analysts at Thomson Reuters Point Carbon said in a weekly report on Monday.

Carbon allowance auctions will increase to 5.2 million units this week, from 4 million last week.

From Sept. 1, sale quotas return to pre-August levels of between 8 million and 10.5 million allowances per week. A group of 25 EU nations earlier on Monday sold 934,000 spot EUAs for 6.30 euros each.

British utility SSE said on Monday it wants reforms to the EU's carbon market to be implemented earlier than the 2020 date proposed by the European Commission, echoing similar calls from Germany.

The European Commission, the EU's executive branch, in January proposed introducing a market stability reserve (MSR) to help absorb some of the more than 2 billion surplus allowances currently weighing on the market.

The German government said in June it wants the MSR to take effect from 2017, a proposal the Commission has said it is open to.

"The UK should join with the German government and signal its support for the early introduction of the MSR," said Martin Pibworth, SSE Managing Director, Wholesale in a blog on the company's website.

Britain's government has not formally backed the MSR but has previously pointed out that the sooner reform of the carbon market takes place, the sooner the bloc's Emission Trading System can be restored as an effective policy.

Copyright Reuters, 2014

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