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UN Carbon Offsets Jump the Most Seven Months in Regulatory Clampdown

United Nations carbon offsets rose the most in 17 months after regulators said they are reviewing projects that cut hydrofluorocarbons, fueling speculation that the supply of credits will plunge.

UN Certified Emission Reductions for December 2010 gained as much as 5.8 percent, the most since March 9, 2009, to 13.29 euros a metric ton in London. CERs, awarded to projects that lower emissions in developing nations, can be used to comply with the European Union’s emissions trading system, the world’s largest cap-and-trade program.

Regulators of the UN Clean Development Mechanism, the second-biggest emissions market, said yesterday they won’t immediately issue tradable emissions credits to the developer of a Chinese hydrofluorocarbon-23 project as they seek more information. UN regulators are ramping up scrutiny after allegations that some developers are seeking excessive credits related to HFC-23, an industrial gas whose warming potential is 11,700 times more powerful than carbon dioxide.

The reviews are forcing traders into a “guessing game,” because it is unclear what regulators will do next, said Andrei Marcu, head of policy and regulatory affairs at Mercuria Energy, the Geneva-based oil and carbon trader. “If the intention is to put up all projects on review, that should be made clear upfront,” Marcu said today by phone and e-mail. Trading credits “requires good nerves,” he added.

The premium of 2010 UN credits over 2012 contracts surged 43 percent to 77 euro cents a ton. Spot UN credits rose 5.4 percent to 13.30 euros a ton on the BlueNext exchange in Paris. EU allowances for December gained 2.4 percent to 14.74 euros.

More Scrutiny

The Changshu 3F Zhonghao New Chemicals Materials Co. plant, backed by BP Plc, Deutsche Bank AG, Enel SpA and RWE AG, was the fourth project this week to face a review before the UN issues credits.

The CDM, overseen by an executive board headed by Clifford Mahlung, said earlier this week it may review whether to award credits on three other projects cutting HFC-23. It will probably question all projects seeking emission credits for reducing the industrial gas, the International Emissions Trading Association said yesterday.

“We are going to revise our supply forecasts, given the fact that the scenario featuring an impact of the HFC controversy on existing, issuing projects is materializing,” said Emmanuel Fages, a Paris-based analyst with Orbeo, the carbon-trading venture of Societe Generale SA and Rhodia SA.

Credits from HFC-23 projects make up about half the supply of offsets issued in the UN carbon market. Emitted in the production of chemicals for air conditioning and refrigeration, HFCs gained favor in the 1970s as an alternative to chlorofluorocarbons, which scientists linked to depletion of the ozone layer.

Windfall Profits

While HFCs don’t interfere as much with the earth’s shield against damaging sunrays, they trap heat and contribute to global warming.

The EU has said projects related to HFC-23 create significant windfall profits and it will consider limits on using them for compliance. The CDM is also assessing whether the methodology for awarding those offsets should be changed after allegations of misuse. Its executive board has concerns about possible “excessive generation of Certified Emission Reductions” from HFC projects, the UN regulator said yesterday.

“It’s still hard to say by how much this could delay some volumes post-2012 or altogether cancel them, but we are possibly talking some hundred million tons,” Fages said. “More revisions should come, as there obviously exists doubt at the executive board level now.”

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net Mathew Carr in London at m.carr@bloomberg.net

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