World Bank Reduces UN Offset Supply Forecast as Price Slumps

The World Bank revised down its projection for the supply of United Nations carbon offsets in the eight years through 2020 by 30 percent, after a collapse in prices deterred projects that generate the credits.

Supply of UN Certified Emission Reductions and Emission Reduction Units will be about 1.9 billion metric tons in the period, the lender said in a report released today, revising down an estimate of 2.7 billion made a year earlier. Demand will be about 1.6 billion tons, creating a surplus of 300 million, the World Bank said, without providing a comparable figure.

Front-year CER futures plunged 99 percent from their peak in July 2008 to a record 20 euro cents ($0.26) a ton last month as regulators in the European Union struggled to tackle a glut of emissions permits in the bloc’s market. The December contract rose 2.6 percent to 40 euro cents at 2:32 p.m. on London’s ICE Futures Europe exchange.

“The price of primary CERs is lower than the cost of issuance for many projects,” Alex Kossoy, a senior finance specialist at the World Bank, said today at a press conference in Barcelona. “Without substantial change it’s doubtful many projects will continue to pursue issuance of credits.”

Project Slump

Carbon offsets allow buyers to acquire emissions-reduction credits more cheaply than it would cost to reduce pollution at home. The EU’s emissions market allowed power stations and factories to use offsets equivalent to about 14 percent of their total greenhouse-gas output in the five years through 2012. The UN credits are created by projects in developing countries, such as Vietnam, or economies in transition, including Russia.

The number of offset projects seeking approval by the UN’s regulator, the Clean Development Mechanism Executive Board, slumped to 17 in February 2013, compared with 256 at the same time last year, the report showed. In March, the number was 18 compared with 278 in 2012.

“Some analysts forecast an 80 percent year-on-year reduction in the number of projects submitted for validation in 2013 compared with 2012,” the World Bank said.

Most of the demand for UN offsets will come from companies participating in the European Union Emissions Trading System and EU member countries looking to meet caps on discharges under the Kyoto Protocol. Several countries that had previously bought offsets as part of their commitment to the first period of the Kyoto Protocol that ended last year, haven’t signed on to a second Kyoto period, curtailing their demand for credits.

‘Political Commitment’

“A high-level political commitment from a large number of developed countries will be needed to encourage new investment” in offset projects, Kossoy said.

The report doesn’t calculate the value or size of the global market as it has done in previous years. Instead, it represents a “one-stop shop” for details and analysis of all current and new emissions-trading systems and carbon taxes around the world, according to Kossoy.

“Current market conditions invalidate any attempt and interest to undertake the same qualitative and transaction-based analysis,” he said.

To contact the reporter on this story: Alessandro Vitelli in London at avitelli1@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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