Bloomberg News

UN Emission Credits for 2011 Fall to Record on ‘Hothouse’ Supply

October 13, 2011

Oct. 13 (Bloomberg) -- United Nations Certified Emission Reduction credits for 2011 dropped to a record low amid rising supply and slowing industrial production.

Credits for December 2011 slumped as much as 5.3 percent to 7.15 euros ($9.82) a metric ton on the ICE Futures Europe exchange in London and were at 7.28 euros as of 4:06 p.m. local time. European Union allowances for December dropped as much as 3.6 percent to 10.31 euros.

“We’ve got a lot of carbon around,” Trevor Sikorski, an analyst for Barclays Plc in London, said on Bloomberg Television’s “On the Move” with Owen Thomas. “It’s been a little bit of a hothouse of supply coming in against very, very moderate demand and that has pushed prices down.”

Carbon prices in the UN-administered market have fallen 36 percent so far this year, undermining the profitability of wind farms and other emission-reduction projects in developing nations that rely on CERs for revenue.

CERs for December next year, a more widely held futures contract, declined to a record 7.32 euros earlier today.

Factories and power stations in the EU program, the world’s biggest carbon market, can use some UN offset credits for compliance, cutting their costs. Australia is also considering allowing CERs within the country’s own emissions-trading system that it expects to start in July.

The UN market has supplied about 253 million tons of new CERs so far in 2011, nearly double the 132 million supplied all of last year.

‘Near the Bottom’

CERs are created under the UN’s Clean Development Mechanism, where projects cut emissions in China, India and other nations, assuming they win approval from UN-overseen regulators based in Bonn. Facilities must comply with rules of the 1997 Kyoto Protocol, which caps emissions in 37 developed nations through 2012.

London-traded UN credits on ICE are “probably near the bottom” because they are close to the minimum prices set in primary supply contracts with projects, said Marcelo Labre, a visiting fellow at London Business School who teaches energy, carbon finance and emissions trading.

At secondary-market prices below 7 euros, “most holders of CERs just don’t sell them, with the effect of keeping prices around the current level,” Labre said today by e-mail after the price plunged. That’s assuming holders have enough working capital without additional sales, he said. CERs for December 2009 on ICE dropped as low as 7.15 euros on Feb. 12, 2009.

Shares Fall

Trading Emissions Plc, a developer of clean energy projects, said Oct. 10 it needed to retain cash as collateral for forward sales of credits and it may not have enough reserves to pay dividends. The shares fell as much as 5.6 percent today to 51 pence in London, near a record 48 pence reached on Oct. 4.

“We should see an accelerated devaluation when we get closer to May 2013,” when use of credits from cutting some industrial gases is halted under EU rules, Emmanuel Fages, an analyst in Paris for Orbeo, the emissions venture of Societe Generale SA and Rhodia SA, said yesterday. “The clock is ticking against them.”

Lawmakers earlier this year banned use of some credits in the EU market, including the most plentiful hydrofluorocarbon-23 offsets, after April 2013. Until then, those credits are eligible for delivery on ICE.

--With assistance from Owen Thomas in London. Editors: Stephen Voss, Rob Verdonck

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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