London Brokers Handle No UN Carbon Offsets for First Time

Carbon brokers in London handled no United Nations certified emissions offsets in March, the first time volume in the over-the-counter market fell to zero, according to an industry group.

Buying and selling of Certified Emission Reductions spot and futures contracts slid from 415,000 metric tons in February and 18 million tons a year earlier, according to data Thursday from the London Energy Brokers Association, which started reporting monthly volumes in January 2011. The group’s members include ICAP Plc and BGC Partners. Brokers handled 100 million tons of European Union carbon permits in March, LEBA data show.

Trading of the UN contracts plunged as factories and power stations are expected to almost exhaust this year a quota for CER use of about 1.5 billion tons for the period from 2008 through 2020, according to Bloomberg New Energy Finance. International talks over climate action after 2020 have yet to clarify the outlook for demand for offsets.

“More than enough CERs have already been issued and traded for EU compliance,” Trevor Sikorski, head of natural gas, coal and carbon analysis at consultancy Energy Aspects Ltd. in London, said Thursday by e-mail. “Everything else is simply going to go into the voluntary market, where they can earn a premium that allows them to meet issuance costs.”

2015 High

CERs for delivery in December advanced 11 percent to 50 euro cents (53 U.S. cents) a ton by 5:01 p.m. on London’s ICE Futures Europe exchange, poised for the highest settlement since Dec. 30. The contract fell to a record 25 cents in June.

Brokers handled 4.3 percent of the CER market in February, the lowest share before March. Trading of the contracts peaked at 357 million tons in October 2012, when brokers matched buyers and sellers for 41 percent of the volume, according to data compiled by Bloomberg.

Since LEBA began recording broker volumes, they hosted deals totaling 2.2 billion tons of CERs, compared with 3.6 billion tons handled by exchanges including Intercontinental Exchange Inc., Nasdaq OMX Group Inc. and CME Group Inc.

Through its Clean Development Mechanism and Joint Implementation systems, the UN has approved more than 2.41 billion tons of carbon offsets, which are created when clean-energy projects reduce emissions compared with business-as-usual conditions. The EU is the biggest market for offsets, while developed-country governments may also buy the credits to set against their limits on greenhouse-gas discharges.

Climate Policies

“The CDM is indeed facing a serious drop in demand,” Lambert Schneider, the chairman of the CDM Executive Board, which regulates projects that create CERs, said by e-mail from Bonn. “Countries and international organizations are exploring new ways of using the CDM, such as for results-based finance or in combination with domestic climate policies.”

Some nations have shown interest in continuing to use the offset market when a successor treaty to the Kyoto Protocol, which set up the rules governing CER supply, is agreed. Nations will meet in December in Paris to negotiate a treaty that will take effect in 2020.

“The 2020 deal doesn’t have any type of compliance infrastructure in place, so where is demand for UN offsets really going to come from?” said Sikorski at Energy Aspects. “In an agreement where every country just details its domestic policy measures, who really needs offsets?”

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