Isramart : Kyoto carbon offsets see pace bumped, forecast slashed

Isramart news:
The UN shaved its forecast for 2012 Kyoto Protocol carbon offsets this week, despite a rise in the number issued by its climate change secretariat last month.

The UN issued 13.3 million offsets in February, the most seen since last November, but cut the number it expects to hand out before the current Kyoto treaty expires in 2012 to 1.035 billion tonnes of carbon dioxide equivalent.

Under Kyoto, efforts to cut greenhouse gases can be outsourced to emerging countries through investment in clean energy projects that have been registered under the UN's Clean Development Mechanism (CDM) scheme. Investors receive offsets in return, called Certified Emissions Reductions (CERs), which can be used towards emissions reduction goals or sold for profit.

The first two months of 2010 yielded 21.9 million CERs, and with another 3.5 million issued by the UN so far this week, Q1-2010 could be on track to see over 33 million CERs, according to Reuters calculations.

This compares to 31.8 million issued in Q1-2009.

Regardless, the UN forecast a lower CER supply by 2012.

"Due to the medium issuance in February our projection for the amount of CERs projected to be available by the end of 2012 decreased from 1,051 million CERs to 1,035 million CERs," said the UNEP Risoe Centre.

That number could drop even further if long bureaucratic delays return to the CDM or if the scheme's executive panel announces more CDM auditor suspensions. Several emissions auditors were suspended last year after the CDM's executive board spotted "non-conformities" in their practices.

Analysts said the repercussions from this, most likely a dent in issuance rates, have yet to be fully felt by the market.

These supply issues have caused the futures curve to become backwardated with spot CERs BNXCER trading some 25 cents above Dec-10 futures CEREZ0 and around 40 cents over the Dec-11's.

Spot CER prices were down over 2 percent to 12.14 euros on Thursday afternoon as lower energy prices weighed.

Average wholesale, or primary market prices for issued CERs was around 9 euros as of last Friday, according to IDEAcarbon, implying a profit margin of over 3 euros when compared to secondary spot market rates.

The CDM's executive is consulting stakeholders on proposals to streamline the registration and issuance processes, and will review all comments at its next meeting from March 22-26.

The share of industrial gas CERs, those generated by CDM projects that capture potent greenhouse gases like hydrofluorocarbons (HFCs) and nitrous oxide (N2O), fell for a third straight month in Feb. as more renewable energy and energy efficiency projects received CERs, UN data showed.

Industrial gas CERs now make up 75.1 percent of all issued CERs, down from 76.6 percent in November.

Although there are now 81 registered HFC or N2O projects, three quarters of all industrial gas CERs come from 10 large projects in China, India, South Korea and Brazil.

New industrial gas projects, once called "low-hanging fruit" because they were easy to implement and provided the greatest return on investment, are all but scarce now with only a handful currently awaiting validation.