Supply of UN issued CO2 credits to hit 8-mth low

London, 22 June 2012

Reuters Point Carbon: Developers have asked the U.N. to issue 3.5 million Certified Emission Reductions (CERs) next week, putting June supply on course to hit an eight-month low, though analysts said prices would not be impacted. Data on the UNFCCC website shows 21 projects have applied for credits to be issued over June 25-29, which will take the number of offsets handed out this month to 16.4 million, the lowest monthly total since October 2011’s issuance of 14.8 million.

June’s likely issuance marks a 29 percent month-on-month fall compared with the 23.2 million CERs handed out in May and comes two weeks after offset prices hit a record low of 3.16 euros.

The tail-off in supply comes as U.N. regulators scrutinise issuance to some projects that earn credits by destroying the highly potent greenhouse gas HFC 23.

This project type has accounted for more than half of all credits issued so far and the reviews have held back 6.2 million CERs from the market over the past month. If regulators decide the rules have been broken, developers may have to wait until next year to get their hands on the credits, missing a key delivery deadline for the EU Emissions Trading Scheme.

LOWER FORECAST

Despite Barclays today lowering its forecast for overall CER issuance in 2012 by 20 million to 300 million, the bank's analysts said prices are unlikely to be impacted due to the huge supply of credits and paltry demand.

The analysts slashed their CER price forecast by 50 percent to 3.5 euros for the 2013 to 2020 trading phase of the EU ETS – the largest source of demand for U.N.-backed credits. They said a reduction in industrial output across the EU will leave the bloc’s carbon market with a surplus of 2 billion credits, including CERs.

The European Commission is considering delaying the sale of between 400 million and 1.2 billion EU Allowances from 2013 in a bid to boost prices, but even if an expected 700 million EUAs are withheld this would not support CER prices, Barclay’s warned.

“We certainly see no further upside for CERs from current levels. If the set-aside does go ahead, EUAs will tick-up and we expect that the (EUA-CER) spread will tick-up to levels around 5 euros/t by 2014,” the report said.

Front-year CERs were trading at 4.05 euros on Friday after chalking up gains on the back of stronger EUA’s, buoyed by utility buying and short covering.

As of Friday, a total of 955 million CERs have been awarded, the UNFCCC website showed. Meanwhile a total of 143 million CERs have been issued so far this year, giving a year-to-date weekly average of 5.7 million CERs.

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