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UN Carbon Offset Trades Near Record Premium to 2011 on Regulatory Review
The premium of United Nations emissions offsets for this year to those for 2011 traded near a record as the regulator reviews the way it awards emission credits tied to hydrofluorocarbons, or HFCs.
The spread between the two so-called certified emissions reductions, traded as a separate contract, advanced 1 cent, or 1.6 percent, to 64 euro cents (82 cents) a metric ton as of 12:10 p.m. on London’s European Climate Exchange. The contract rose as high as 66 cents yesterday.
“Regulatory risk has started to overshadow the market and for the next few months that is going to be the main factor determining prices,” Mark Lewis, Paris-based director of global carbon research at Deutsche Bank AG, said by telephone.
The executive board of the Clean Development Mechanism, which oversees the world’s second-biggest emissions market for the UN, has halted issuance of some emissions credits after allegations that factories which destroy HFCs have gamed the system to get more credits. At the same time, the European Union is drafting a proposal to limit the use of certain offsets from industrial gas projects, including HFCs. Factories and power stations currently under the EU’s cap-and-trade program can use offsets to meet some emissions limits.
‘Real Risk’
“There is a real risk of a CER supply shortage, there may be fewer credits than would ordinarily have been issued if it wasn’t for the reviews,” Lewis said. The European Commission is unlikely to make a decision on limiting HFC or other emissions credits before the international climate change meeting in Cancun, Mexico, in December, he said. “It is very clear they are going to be quite aggressive in what they propose.”
The discount of UN permits for 2010 to the equivalent EU permits, traded as a spread contract, has widened 24 percent since Aug. 19 to 1.92 euros a metric ton on ECX as risks that CERs won’t be delivered this year rose.
The UN regulators also turned down 18 renewable energy projects in China seeking tradable credits, London-based Project Developer Forum Ltd. said in a letter published on its website. The board said it’s concerned that some developers in emerging countries may be improperly using the so-called CDM.
Fewer offsets credits may trigger higher demand for EU allowances, Emmanuel Fages, a Paris-based analyst with Orbeo, the carbon-trading venture of Societe Generale SA and Rhodia SA, said in an Aug. 28 e-mail.
UN CERs for December rose 1.6 percent to 13.69 euros a metric ton on ECX as the contract for 2011 advanced 1.4 percent to 13.03 euros. When longer-dated contracts trade at a discount to near-term ones the market is said to be in backwardation.
“The backwardation of the CER curve should increase,” Fages said. “The supply cut impacts the front of the curve more, while the quality restrictions will” raise the risk of CERs not being usable after 2012 and so “bearish for December 2012.”
To contact the reporter on this story: Catherine Airlie at cairlie@bloomberg.net
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