ArcelorMittal (MT) and Lafarge SA (LG), the world’s biggest steel and cement makers respectively, used the most United Nations offsets to cover carbon-dioxide emissions last year, according to data on the European Commission website.
Factories and power stations used 254.6 million offsets in the bloc’s cap-and-trade program, the data show. ArcelorMittal handed in about 29.3 million credits, enough to cover 78 percent of its emissions last year, while Lafarge used 11 million, or 64 percent of its pollution. Offsets may be used to cut compliance costs with Europe’s carbon trading system.
Industrials are using offsets because they are short of money and less concerned over future compliance costs, according to Barclays Plc.
“We’d expect industrials to hand in a fair amount of offsets,” Trevor Sikorski, an analyst in London for the investment arm of the bank said by phone. “A lot of them will be finding access to credit difficult, and current concerns around cash flow would drive them to look for monetization of value.”
UN-sponsored offsets known as Certified Emission Reductions and Emission Reduction Units are awarded to projects that cut greenhouse gases that scientists blame for accelerating climate change. UN CERs for December slumped 4.2 percent to 3.70 euros ($4.87) a metric ton at 5:20 p.m. on London’s ICE Futures Europe exchange.
Germany, France and Spain used the most United Nations emission offsets. Emitters in Germany surrendered 74.4 million tons of credits, while those in France used 27.5 million tons and Spanish installations submitted 27.4 million tons to the European Commission, according to data published today and compiled by Bloomberg New Energy Finance.
Each country sets its own limit on companies’ use of offsets, ranging from zero in Estonia to 20 percent in Germany. Unused quotas can be used in subsequent years.
The use of offsets in 2011 was higher than the median estimate of five analysts surveyed by Bloomberg News on April 30. The median prediction was for 244 million credits. The offsets are a cheaper form of compliance to cover the 1.85 billion metric tons of carbon dioxide emitted in 2011. That means offsets were used to cover about 14 percent of emissions.
The EU has banned the use of credits linked to hydrofluorocarbon-23 from its trading system from next year, saying these credits generate excessive profits. HFC-23 offsets make up about 44 percent of total supply and so installations should make use of them while they are allowed to in the program, Mark Lewis, an analyst in Paris for Deutsche Bank AG, said today by phone.
“It’s becoming obvious to emitters they need to use up their quota,” Lewis said. “We have these qualitative restrictions kicking in from 2013.”
The discount of UN credits to European Union permits for December narrowed 5.1 percent to 3.52 euros a ton on ICE Futures Europe. The spread, traded as a separate contract, had widened over the previous four sessions, according to prices compiled by Bloomberg.
“The spread shouldn’t widen any further,” unless there’s an increase in supply of offsets from Russian projects, he said. Deutsche Bank forecast credit use will rise to 300 million tons for this year’s CO2 emissions and companies will bank as many as 600 million eligible units for use in the future, according to an e-mail.
Barclays predicts 400 million tons of offsets will be used to cover 2012 emissions, according to an e-mailed note.
“The impact on prices should be minimal,” Sikorski said. “This was in line with expectations and does not alter the supply and demand fundamentals in the market.”
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