LONDON - European Union carbon emissions futures paused for breath on Wednesday, after a two percent rally in the previous session. EU Allowances (EUAs) inched down 4 cents or 0.30 percent to 13.45 euros ($20.27) a tonne at 1209 GMT with light volume at 1,090 lots.

There was some attempt at correction this morning but we're still around 13.40 euros, an emissions trader said.

A lot of people have been squaring their positions ahead of Copenhagen and the end of the contract on December 14, another trader added.

Traders said concerns about a wave of industrial selling before the end of the year had eased in an increasingly confident mood ahead of a U.N. summit in Copenhagen next week.

There were some fears that industrial companies could dispose of excess EUAs in December or January, leading to lower prices.

However, the approach of the Copenhagen summit, better financial conditions will deter industrials from selling surplus EUAs in favor or banking them for 2013, traders said.

In fact, a major carbon covering spree could be expected in February or March next year as European utilities are likely to cover carbon costs within forward power sales, said Heiko Siemann, carbon expert at HVB, a unit of Italy's UniCredit bank, at a press briefing in Frankfurt on Wednesday.

They typically start selling power three years in advance and by buying carbon simultaneously they aim to lock in power prices margins, he said.

Siemann said that while permits could theoretically be bought any time, purchases at the moment were subdued because many companies lacked spare money due to the recession, and because of uncertainties around the outcome of the Copenhagen summit.

But 2013 will mark the beginning of a new carbon trading phase in which most permits must be bought at auction, the implied costs would make carbon more expensive at that stage.

U.S. oil fell below $78 a barrel on Wednesday after industry data showed a surprise build in U.S. crude stocks, raising doubts over demand recovery in the world's largest energy user.

German Calendar 2010 baseload power on the EEX was down 40 cents or 0.91 percent at 43.40 euros per megawatt hour. U.N.-backed certified emissions reductions (CERs) were down 7 cents or 0.56 percent at 12.48 euros a tonne.

(Reporting by Vera Eckert in Frankfurt and Nina Chestney in London; Editing by xxx)

Climate change