UN Carbon Plan Won’t Reverse 99% Price Decline, New Energy Says

Support for voluntary retirement of United Nations carbon credits at last month’s global climate talks is unlikely to dent a surplus that drove prices to record lows, according to Bloomberg New Energy Finance.

Envoys at the UN Conference of the Parties in Warsaw encouraged canceling Certified Emission Reductions, or CERs, while stopped short of simplifying the retirement process. About 4 million CERs have been voluntarily canceled by nations and companies, UN data show, compared with more than 1.4 billion created since 2005, according to New Energy Finance.

Prices for the credits generated by projects that cut emissions in developing countries under the UN’s Clean Development Mechanism plunged as much as 99 percent since 2008 as the global economic slowdown cut demand. Approval of CDM projects in 2013 has dropped 93 percent from a year earlier, UN data show, as the credit surplus discourages new investment.

“Voluntary cancellation of credits is all well and good but it is highly unlikely to make a dent in the oversupply of UN offsets,” Richard Chatterton, an analyst at New Energy Finance in London, said by e-mail Nov. 28. “COP delegates seem to agree that the CDM can’t be allowed to die, but they can’t decide on how it could be saved.”

CERs may be used by factories and power stations in the EU emissions trading system to meet some of their cap on greenhouse-gas discharges. Prices for the offsets tumbled to as low as 20 euro cents ($0.28) a metric ton in April from a peak of 23.38 euros in July 2008. The contracts traded today at 38 cents a ton on London’s ICE Futures Europe exchange.

2020 Deal

Negotiators at the Warsaw summit postponed a decision to instruct the executive board of the CDM, which governs the supply of CERs, to simplify the voluntary cancellation process. At the same time, they called on nations to “make greater use” of the CDM and to promote the voluntary cancellation of CERs to deepen emissions cuts before a new global climate pact takes effect in 2020.

Peer Stiansen, chairman of the executive board, said the outcome of Warsaw was “not critical” for voluntary cancellation, as offsets can already be retired.

“I sensed some reluctance from some parties to put emphasis on voluntary cancellation in the CDM decision while parties in other rooms were trying to negotiate a long-term agreement,” Stiansen said by phone from Oslo on Dec. 5. “It would have been nice to make it easier to retire credits, but it is already possible.”

Supply of CERs may be as little as 1 billion tons through 2020, New Energy Finance said in October. Many CERs may remain unissued as prices are currently below cost.

Voluntary cancellation is “one piece of helpful architecture that might stimulate some interest in entrepreneurs,” Dirk Forrister, chief executive officer of the International Emissions Trading Association, said in an interview in Warsaw Nov. 22. “We have a larger problem about demand, and voluntary cancellation alone won’t solve it.”

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