Carbon dioxide emissions from heavy industry participating in the European Union's Emissions Trading Scheme (EU ETS) fell 3.1 percent last year compared with 2007, the EU executive Commission said on Friday.

The Commission was keen to find evidence that its four-year-old flagship scheme to fight climate change was working.

The EU ETS really started to make a difference to emissions in 2008, EU Environment Commissioner Stavros Dimas said in a statement.

But energy efficiency, and thereby cutting carbon emissions, also shot up companies' agendas in 2008 after crude oil prices peaked at a record $147 in July, before falling as the economic slowdown set in.

The scheme failed to have much impact on emissions in its first trading phase from 2005-07 after the EU handed out too many emissions permits, causing a carbon price crash. The United States and Australia are mulling launching similar schemes.

The Commission said the drop in emissions in 2008 was partly due to a knock-on effect of the financial crisis on industrial output. But higher carbon prices now had also spurred industry efforts to cut emissions, it said.

The scheme works by forcing power plants and factories to buy carbon emissions permits above a certain quota which they get for free, motivating utilities for example to switch from high-carbon coal to gas.

The price of carbon does change the dispatch of generators, Barclays Capital analyst Trevor Sikorski told Reuters. In the first half of 2008 the (carbon) price was quite important in gas use rather than coal use.

Prices for carbon permits called EU Allowances (EUAs) hit a high of 31 euros ($42.02) last July, before dropping as low as 8 euros in February when cash-strapped industrial companies monetized their permits.

EMISSIONS DATA

The EU published preliminary carbon emissions data last month. The final data showed on Friday total EU ETS emissions at 2.060 billion metric tons of CO2 in 2008 compared with 2.126 billion in 2007, excluding Bulgaria, Norway and Liechtenstein.

In its data, the Commission 2008-2007 comparison did not account for slight changes to the scope of the EU ETS, as some smaller installations dropped out of the EU flagship scheme to fight climate change, while other, larger ones joined.

EU and Norwegian industry participating in the scheme were allocated 1.916 billion metric tons of free EUAs in 2008, compared with emissions of 2.118 billion metric tons.

The data also revealed that EU industry surrendered 81.7 million metric tons of Kyoto Protocol carbon offsets, called CERs and ERUs, and 85.1 million metric tons of auctioned and 2009 allowances.

I expected between 50-80 million CERs to be surrendered, so this was at the high end of expectations, Sikorski said.

The data showed that 41 percent of CERs surrendered originated in China, 31 percent in India, 15 percent in South Korea, 7 percent in Brazil and a further 14 countries making up the remaining 5 percent.

Under the EU ETS, installations must submit their verified emissions data for each year to the 27-nation bloc's registries. Prices were up 28 cents or 1.94 percent at 14.72 euros a metric ton at 1051 GMT.

(Additional reporting by Michael Szabo and Gerard Wynn; Editing by Sue Thomas)

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