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UPDATE 1: EU, UN carbon prices drop on reform plan

LONDON, Nov 14 (Reuters) - Prices of European Union and United Nations' carbon permits dived on Wednesday after the European Commission's report on options for reform of its emissions scheme disappointed traders.

U.N. carbon credits, called certified emissions reductions (CERs) fell to a new all-time low of 0.64 euros ($0.81) a tonne as they followed the steeper drop of EU carbon permits.

EU permits, known as EU Allowances (EUAs), fell 8.2 percent to 7.72 euros a tonne by 1331 GMT, on large volumes of 11,673 lots.

Officials have always said that long-term proposals could only be outlined at this stage but some market participants had been expecting the Commission would propose the permanent removal of some 700 million EUAs from the market to address low prices.

"There was a sell-off in the absence of any firm proposal for structural reform," a trader said.

EUA prices have been trading between 6 and 9 euros for most of the year due to an economic downturn which has reduced demand for permits from industry and power companies, and a more general over-supply of permits.

Permanent cancellation of permits is one of the possible options on the table to bolster the market but there are no firm numbers available yet and officials have always said long-term proposals would only be outlined at this stage.

The Commission's views on long-term change for the scheme emerged last month in a draft seen by Reuters.

The Commission on Monday proposed deferring the auction of 900 million allowances that would have been sold between 2013 and 2015, the first three years of the next phase of the EU Emissions Trading Scheme (ETS).

This would be a temporary measure, which still has to be voted on by member states next month, as the permits would be reinserted into the market in 2019-2020 and there are fears carbon prices would then fall again.

Energy companies are among those calling for more permanent solutions to low prices to incentivise low-carbon investment.

The ETS caps carbon emissions on more than 12,000 industrial and power plants across the 27-nation bloc and governments are allowed to sell a certain number of carbon permits each year called EU Allowances.

By Nina Chestney - nina.chestney@thomsonreuters.com