May 15 (Bloomberg) -- European Union carbon permits had their biggest gain ever because of last year's smaller-than-expected surplus of allowances governing pollution levels at factories and power stations in the region.

The governments of the 21 nations reporting allocated an average of 1.83 billion metric tons of allowances in each of the three years through 2007, the European Commission, the administrative arm of the EU, said today. Actual emissions last year were 2.5 percent lower at 1.79 billion tons. The data excludes Poland, Cyprus, Luxembourg and Malta.

Europe's market to trade carbon dioxide almost doubled to 205 billion euros ($265 billion) in a year. More than two-thirds of the value vanished in the past three weeks as traders began to expect a surplus instead of a deficit. The EU trading regime is designed to help the region comply with the Kyoto Protocol, an agreement among nations to curb output of greenhouse gases.

``Nothing is certain in this market,'' said Kris Voorspools, an analyst at Fortis, Belgium's biggest financial-services company. ``It's disappointing we don't have complete data.''

EU carbon-dioxide allowances for December 2006 today surged 5.8 euros, or 62 percent, to 15.10 euros a metric ton, according to the European Climate Exchange. Earlier, the price climbed as high as 17.25 euros a ton, the highest since April 27.

France and Poland requested and received permission to shift permits, or bank them, from the three-year first phase to phase two, which runs from 2008 through 2012, Peter Zapfel, an official from the European Commission's climate change unit, told the Carbon Expo conference last week in Cologne, Germany. All 25 EU nations have the right to shift allowances within phase one.

`Incomprehensible'

The supply of permits in the three years through 2007 may fall further if Poland and France allow many factories and power stations to use their permits after 2007, said Voorspools.

``It's absolutely incomprehensible'' the commission has not given the market clarity yet on rules for banking phase one permits in phase two, Per Lekander, an analyst with UBS AG in London, said today by telephone. Damien Meadows, a deputy head in the commission's environment department, said he would try to clarify the rules for Poland as soon as possible. Slawomir Mazurek, a spokesman for the Polish environmental ministry, said he couldn't immediately comment. France has said it's limiting the transfer of permits between the two phases.

Germany, the biggest emitter, today said it may recall more than half the 21 million over-allotment that factories and power stations were granted last year.

Higher Grant

The total surplus reported today by the commission was smaller than the 75 million tons estimated last week by Fortis, Belgium's biggest financial-services company. Point Carbon, an Oslo-based publishing and research company, forecast the surplus would be 67.5 million tons.

The 2005 permit allocation was higher than those granted for each of 2006 and 2007 to ensure against a potential shortfall, partly in the event companies needed more allowances than expected because of bad weather, the commission's Meadows said. If that ``front-end loading'' is included, the surplus is closer to 64 million tons, he said.

The U.K., which had a deficit of allowances, called for the commission to force countries with surpluses to cut their grants for the second phase.

``I will be encouraging the commission to use this information to improve the enforcement of tough caps for Phase II so that the scheme provides the appropriate incentives for investment in clean technology,'' Environment and Climate Change Minister Ian Pearson said today in a statement.

Possible Fines

About 849 installations hadn't surrendered the correct number of emissions allowances by an April 30 deadline, the commission's report said. Many have since handed in the correct quantity, it said. Sites face a 40-euro-a ton fine for not surrendering the proper number of permits under the regime.

Companies with sites covered by the regime include Alcan Inc., the world's second-biggest aluminum maker, and BP Plc, Europe's largest oil company.

Before rebounding, carbon prices for December today slid to their lowest in more than 14 months after some analysts said the surplus might be as large as 200 million tons. The price fell as much 73 percent since April 19, when they touched a record high of 31 euros.

Carbon permit prices can be affected by factors including the weather, fuel costs, the supply of credits from outside Europe and the size of certificate pools set aside by governments for new entrants in a market.

Surplus, Deficit

These factors could generate a surplus of as much as 230 million tons, or a deficit as large as about 260 million in phase one, according to Point Carbon in a February presentation.

In the program that started last year, many factories and power stations in Europe must have an allowance for each ton of carbon dioxide they emit. Those that emit more need to buy allowances in the market or face the fines. Those that emit less can sell their surplus. The fines rise to 100 euros a ton starting in 2008.

The emissions data, which was scheduled to be released today, was published May 12 on an EU Web site, called the Community Transaction Log, because of a technical fault, Point Carbon, an Oslo-based research and publishing firm, said last week.

Click http://www.ec.europa.eu/comm/environment/ets/welcome.do to access the EU's community transaction log Web site. Click on the allocation/compliance search icon on the left-hand menu. Choose a nation in the ``registry'' box. Click the search box and, then, click the ``export'' box and choose a format for the download.

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net;

Last Updated: May 15, 2006 13:31 EDT