EU Carbon Permits Drop to Record, Offsets Fall on Supply Glut

United Nations emission offsets from developed nations plunged 42 percent and European Union carbon allowances slumped to a record on a supply glut.

UN Emission Reduction Units for delivery in December dropped to as low as 15 euro cents ($0.20) a metric ton, an all-time low, and were at 16 euro cents on the ICE Futures Europe exchange at 4:59 p.m. in London. There were 657 million tons of ERUs issued as of Jan. 9, which will be potentially eligible for conversion to EU allowances and use in the bloc’s carbon market, Bloomberg New Energy Finance said in a research note today, citing UN data.

The European Commission, the EU regulatory arm, is seeking to impose limits on ERUs from certain countries including Russia in its cap-and-trade program. In a draft regulation presented to member states last week the commission proposed ERUs representing emissions cuts made before Dec. 31 and issued this year or later under the so-called Track One procedure by countries without post-2012 emission goals may be used as long as they undergo additional checks. The proposal is less stringent than an original plan by the EU in October.

“The proposal allows for increased flexibility to demonstrate that reductions have taken place by end-2012 in case changing track is not possible,” Isaac Valero-Ladron, climate spokesman for the commission, said by e-mail today.

ERUs are generated under the UN Joint Implementation program, which encourages investments in low-carbon energy by industrialized countries in other nations that have emission goals under the Kyoto Protocol. Track One ERUs are issued in a procedure overseen by governments while Track Two offsets are approved by UN regulators for issuance.

EU Regulation

The EU regulation would impact offsets for greenhouse gas cuts made in the first commitment period under the protocol, which started in 2008 and ended in 2012. Track Two credits will be allowed to be held in the EU registry until March 2015, in line with the existing regulation, according to the draft.

EU allowances for December dropped as much as 2.9 percent to 5.75 euros and closed at 5.90 euros on ICE. The contract may drop as low as 5.40 euros a metric ton by end of week on new supply of permits from auctions held by European governments, according to New Energy Finance.

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