Bloomberg News

UN Emission Credits Surge as Developers Delay Carbon Claims

April 09, 2013

Emission credits issued by the United Nations surged 38 percent this month amid speculation that project developers are snapping up contracts in the market to meet commitments as they delay claims for carbon cuts, according Bloomberg New Energy Finance.

Certified Emission Reductions for December traded at 40 cents ($0.52) a metric ton on the ICE Futures Europe exchange in London after yesterday reaching a 12-week high of 43 cents. The contracts, issued by the UN to encourage investment in climate- protecting projects in emerging nations, are still down 91 percent from a year ago amid an oversupply.

The low price means the cost of monitoring and verifying emission reductions can be more than developers make from selling the credits, James Cooper, an analyst at New Energy Finance in London, said in an e-mail. Instead, they’re buying credits in the market to meet agreements with buyers to deliver the greenhouse-gas emission offsets, he said.

“These projects are likely to delay issuance indefinitely in the hope that prices will rise,” Cooper said. “We’re likely to see this affect the CER issuance rate, which is set to fall sharply over the coming months.”

Under rules of the UN’s Clean Development Mechanism, projects need to hire audit firms to make sure the reductions are credible.

The amount of outstanding December CER contracts traded on ICE increased 1.4 percent on April 8 to a record 60.7 million tons, according to exchange data published yesterday.

‘Scaling Back’

This month’s rise in the price of UN credits comes as factories, power stations and airlines in the European Union carbon market prepare to hand in allowances or offsets by the end of the month to cover last year’s emissions.

“The December 2013 rally could be because CDM project developers are scaling back planned issuance and closing their hedges previously made,” Cooper said.

Prices may also be supported by the ban on industrial-gas emission credits in Europe, which starts in May, according to Daniel Rossetto, a London-based director at carbon market adviser Climate Mundial Ltd. The support stems from a drop of about 20 million tons of CERs available for use in Phase 2 of the EU’s emissions market, which started in 2008 and ran until 2012.

Emissions Targets

The EU has placed a limit of about 1.7 billion tons on the amount of UN offsets that can be used to meet the bloc’s emissions targets, according to its website. That’s about half the expected reductions under the EU’s carbon program from 2008 through 2020.

Because fewer credits may used in Phase 2, more can be made available in Phase 3, which runs through 2020, according to Rossetto. This supports the price of December CER contracts, the benchmark for Phase 3, because demand for the credits is higher, he said.

The bloc banned CERs covering projects reducing emissions of some industrial gases, including those used in making air conditioners and for producing plastics. Factories and power stations in the EU carbon market can use the banned credits for compliance through the end of this month to match last year’s greenhouse gas emissions.

The producers of credits that will be banned, known as gray CERs, “have run out of time as the clock stops soon,” Rossetto said.

CERs for delivery this month were unchanged at 4 cents a ton after dropping to record-low 3 cents on April 4, according ICE data.

EU carbon allowances for December dropped as much as 10 percent to 4.66 euros a ton in London, ICE data show.

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net; Alessandro Vitelli in London at avitelli1@bloomberg.net

To contact the editor responsible for this story: Rob Verdonck at rverdonck@bloomberg.net


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