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UN Kyoto Set-Aside May Crimp Supply After 2012, CEPS’ Marcu Say

United Nations envoys will probably restrict trading of surplus Kyoto Protocol allowances by countries and crimp an oversupply in carbon markets faster than expected, said Andrei Marcu, head of the Centre for European Policy Studies’ Carbon Market Forum.

Limits on the use of spare Assigned Amount Units, given to nations with targets under Kyoto’s first commitment period, may help boost carbon prices next year after they reached a four-year low on Dec. 14, Marcu, based in Brussels, said yesterday by phone. CEPS studies areas including rural policy, economics and climate protection using public and private funding. The first commitment period runs for the five years through 2012 and the second will run through 2017 or 2020.

Proposals by some South American and African nations made near the end of climate-protection talks in Durban, South Africa, earlier this month “were very restrictive,” Marcu said. “This has the potential to represent a significant set-aside at the UN Framework Convention on Climate Change level that will translate to the supply-demand balance.”

An oversupply of AAUs hurts carbon prices because a nation buying the units may then not demand United Nations offset credits, which can add to a surplus in the European Union greenhouse gas market, the world’s biggest. Nations with spare AAUs have sold about 2.6 percent of a potential 9.7 billion metric tons of the surplus units, Barclays Capital estimated Nov. 14.

UN Certified Emission Reduction credits for December next year rose 3.2 percent today to 4.20 euros ($5.44) a ton on the ICE Futures Europe exchange in London. They have dropped 62 percent this year.

EU Set-Aside

Restricting use of AAUs, as well as potentially offset credits, under the Clean Development Mechanism and Joint Implementation programs may help boost carbon prices, Marcu said. Proposals for a set-aside at the EU level, or the temporary removal of carbon permits from that market, would also cut supply, he said.

Limits on the future use of AAUs, CERs and Emission Reduction Units may require nations with spare allowances or credits to use them to cover domestic emissions rather than trade them with other nations, Marcu said.

EU and UN lawmakers are already considering restrictions after 2012 based on the quality of emission credits, he said. “The supply-demand balance has to take this into account.” The market’s decline on Dec. 14 “was probably an overreaction.”

Additional demand from airlines, which are included in the EU market starting next month, may also boost prices, Marcu said. Marcu was previously head of regulatory affairs for Mercuria Energy Group Ltd. and chief executive officer and founder of the International Emissions Trading Association.

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