INTERVIEW-Carbon market sending wrong signals -Hafslund

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* Norwegian utility says power prices to fall in short term

* New measures may be needed to reach EU emission goals

* Has substantially cut or postponed investment plans

* Sees weakening power demand from industry

OSLO, Jan 28 - Norwegian utility Hafslund (HNB.OL: Quote, Profile, Research) said the carbon market, weakened by a global credit crisis, is sending the wrong signal to power producers and industry that Europe can meet its targets to cut greenhouse gas emissions on the cheap.

Hafslund, Norway’s biggest electricity retailer, also said on Wednesday Nordic power prices were in a downward trend, due partly to falling demand from industrial clients affected by the global economic slowdown.

A tonne of carbon dioxide emissions EUA2YZ9 traded on Nordic power exchange Nord Pool now costs 11.7 euros ($15.51), half the price seen in mid-September.

Hafslund Chief Executive Christian Berg told Reuters the sliding price of polluting cast doubts on European Union targets to reduce carbon emissions by 20 percent and boost renewable energy to 20 percent of the EU energy mix by 2020.

“If you maintain the 20/20/20 targets, and you want to reach them together with industry, you need…a higher carbon price,” Berg said on the sidelines of a seminar by brokerage Pareto.

“We created a carbon market which is supposed to give signals, and if the market doesn’t give the signals wanted by the politicians, they need to see if they can apply other measures — it could be subsidies, more strict regulations, changes in taxes, or other means,” he added.

He declined to specify the carbon price level he believed would suffice to meet EU targets, but said that Swedish utility Vattenfall [VATN.UL] used prices of above 30-40 euros per tonne in calculations for its renewable energy pilot projects.

“We should see carbon prices create an incentive for building plants and perhaps falling only once we have… industrialised this type of research and development,” he said.

DROPPING PRICES AND DEMAND

Berg said a 45 percent drop in Nordic electricity prices from mid-2008 was “dramatic” and has hit financial results of utilities and crimped their investment plans.

“In the short term, what we see in the market is prices falling,” Berg said. “There is a slowdown in industrial demand and it’s not clear when demand-side factors will turn around.”

Berg said Hafslund — 54 percent owned by the City of Oslo and 34 percent by Finland’s Fortum (FUM1V.HE: Quote, Profile, Research) — had been forced to take a more cautious approach to investment, lowering outlays and spreading them out over time.

“We are taking it (investment spending) down a substantial amount, and prolonging the period over which we carry out the investments,” he said, noting other utilities faced similar situations.

He said it was harder for utilities to get loans and that banks sought a more hands-on role in determining how the money was spent. Since mid-September, Hafslund has refinanced 3.1 billion crowns ($461.8 million) worth of debt, Berg said.