Isramart :CO2 prices may fall on climate deal, Barclays says

Isramart news:
EUROPEAN and United Nations carbon prices may fall this week because the Copenhagen climate deal didn’t set targets to boost demand for permits, a Barclays Capital analyst said in an interview.

European Union (EU) carbon-dioxide allowances, with trading volume of $92 billion a year, will probably drop about 7 percent as markets open tomorrow in response to the accord, said Trevor Sikorski, emissions analyst for Barclays Plc’s investment bank.

The agreed targets amount to a “bunch of negotiation ranges” that investors had already factored in, Sikorski said in a phone interview after returning to London from the Danish capital.

“It seems to be below even our modest expectations.”

US President Barack Obama said the climate-change accord he reached with China and most of the 193 attending nations on December 18 was an “unprecedented” first step to slow global warming.

Environmental groups such as Friends of the Earth called it a failure because it’s not a binding treaty and the targets fall short of what the UN climate adviser said is needed to prevent catastrophic and irreversible climate change.

Permits in the EU, which runs the world’s largest cap-and- trade system, closed at €13.58 ($19.44) on December 18, down 6.8 percent last week as UN envoys bickered over targets and funding to fight climate change. Allowances for delivery in December 2010 have fallen 18 percent this year as the lack of progress on climate talks and recession reduced demand.

The UN’s Certified Emission Reductions credits for delivery next year fell 7.6 percent last week to €11.83 on London’s European Climate Exchange. They are down 14 percent this year.

EU allowances may fall to €13 this week, compared with the €15 that might have followed a binding treaty, carbon analysts led by Heiko Siemann at UniCredit SpA in Munich said in a December 18 report.

The US will probably cut its emissions by 14 percent to 17 percent from 2005 levels by 2020, subject to approval in the Senate, according to an information note circulated by EU officials in Copenhagen along with the accord.

The strength of the carbon market “hinges more on the US than anyone else,” said Jos Delbeke, deputy director general for environment at the European Commission in Brussels, in a December 18 interview hours after the accord was struck. “The impact on the carbon market is going to be marginal.”

The EU said it will stick to its target of cutting emissions by 20 percent from 1990 levels, pulling back from an offer of 30 percent, because other countries didn’t follow suit.

Prime Minister Fredrik Reinfeldt of Sweden, speaking for the 27-nation bloc, said EU leaders decided to stay at 20 percent. That will help drive EU prices lower, Sikorski said.

The US is considering a law that may boost demand for so-called offset credits from the UN starting around 2012. The credits, awarded to companies and investors from richer countries that pay for emission reductions in the developing world, can be used for compliance in the EU market.

The two-week climate meeting, concluded a day behind schedule, failed to deliver most of improvements needed in the UN market, said Kim Carnahan, a UN emissions-trading researcher at the International Emissions Trading Association, a lobby group in Geneva. Its members include Goldman Sachs Group Inc. and Royal Dutch Shell Plc.

Changes agreed for the UN’s Clean Development Mechanism were “not decisive action to which the market can immediately react,” Carnahan said.

UN envoys put off action on proposals for so-called standardized baselines, which would have made it easier for projects that reduce emissions more than industry benchmarks to win credits, according to a text approved in Copenhagen.

Projects are now approved on a case-by-case basis and must show they need credits to be feasible. That approval process has produced a backlog, with 66 percent of 5,641 of the proposed projects that the UN received since 2003 waiting as of December 4, according to data compiled by Bloomberg. The proposal for industry baselines would have meant more credits, traders said.

“I find it incredibly frustrating” that countries can spend days discussing potential technological solutions to climate change such as synthetic trees while they “punt critical issues like standardized baselines” to a technical working group for a year, Carnahan said.

The UN carbon market has staffing shortages and needs more than six months to streamline approvals, Lex de Jonge, chairman of its regulatory board, said this month.

“We are not going to come back on January 1 and see a jump in the issuance,” Alessandro Vitelli, director of strategy and information at IDEAcarbon in London, said in an interview yesterday in Copenhagen.

An appeals process, better communication between the CDM board and project developers, as well as smoother registration and issuance procedures may help the program boost productivity next year, he said.