Isra-Mart srl : CER prices rise on supply concerns

www.isra-mart.com

Isra-Mart srl news:

The price of certified emission reductions (CERs) have been boosted this month as doubts about reduced supply of the Clean Development Mechanism (CDM) credits weigh on buyers in the EU carbon market. As the UN scheme administrators take an ever harder line on emission reduction projects in China, concern is that a significant source of credits to the market up top 2012 may be cut off.

While the overall EU carbon market has lifted in August, with both EUAs and CERs on the rise, CERs have outstripped EUAs over the past ten days. The EUA-CER spread has subsequently narrowed to its lowest levels in four months and in the most-traded contracts stood at €1.81 at the close of trade on August 25. The benchmark Dec 10 CER contract closed at €13.58 while Dec 10 EUAs closed at €15.39.

UN officials said they will put a fifth project destroying potent industrial gases under review amid concerns factories are unnecessarily increasing the amount produced so that they then have more to destroy. Half of all CERs issued worldwide have been created by the destruction of industrial gases, mainly HFC-23, an extremely potent greenhouse gas. A global warming potency almost 12,000 times greater than carbon dioxide makes CDM projects to destroy HFC-23 very lucrative credit generators.

A number of wind energy projects in China have also been rejected by the board recently as not meeting additionality requirements for carbon credits.

“There are fears of a supply squeeze because of fears industrial gases will not be allowed to produce CERs,” said Henry Derwent, chief executive officer and president of the International Emissions Trading Association (IETA) told Bloomberg.

The supply concerns may only intensify following comments by European climate commissioner Connie Hedegaard today that a “major overhaul” is needed of the UN from which CERs are generated. Hedegaard called for “quality restrictions” in the EU ETS after 2012 on the eligibility of CERs from industrial-gas destruction projects. A decision is expected by the end of November.

Meanwhile, demand for CERs might rise throughout this year as European economies recover and emissions return to more normal levels, providing a further boost to prices, Derwent added.