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Fortum Slumps as EU Rejects Carbon Permit Delays: Helsinki Mover

Fortum Oyj, Finland’s largest utility, fell the most in nine months as a vote by the European Parliament restricted an allowance that adds to earnings.

Fortum slid as much as 7.8 percent, the biggest intraday drop since July 19. The Espoo-based company sank 7.3 percent to 13.91 euros by 5:14 p.m. in Helsinki. Volume exceeded 7 million shares, more than double its three-month daily average.

The utility generates a so-called windfall profit because its nuclear and hydropower-based electricity generation is exempt from the need to buy carbon permits, while it sells power at market rates that include the cost of carbon emissions.

The European Parliament today rejected a proposed change to emissions-trading law allowing the supply of carbon permits to be temporarily curbed. That would have raised the cost to Fortum’s rivals of producing electricity, boosting power prices and increasing the windfall profit for the Finnish utility.

Fortum considers the rejection a “disappointment,” as well as a “serious threat” to the EU emissions trading system, the company said in a statement. The trading scheme may be replaced by alternative, more expensive national policies, fragmenting the bloc’s internal energy market, it said.

“Almost all market-based investments are currently on hold in Europe because of the uncertainty regarding the future climate and energy policy frameworks,” said spokesman Esa Hyvaerinen. “The rejection of backloading increases this uncertainty significantly.”

Carbon allowances are intended to offset carbon-dioxide emissions. The contracts for delivery in December fell to a record low of 2.63 euros ($3.45) after the vote.

“Fortum has benefited from not having to buy emissions allowances for its nuclear and hydropower” generation, Pasi Vaeisaenen, a Nordea Bank AB analyst, said by phone. He has a buy rating on the shares and a price estimate of 18 euros.

“Market psychology makes the effect greater than the concrete numbers,” Vaeisaenen said. “Low carbon allowances just prevent exceptionally good profitability.”

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