London, 23 November 2011

Fears about abundant supply and slack demand sent U.N-backed carbon offsets crashing through 6 euros on Wednesday, while EUAs hit a new 33-month trough of 8.35 euros, hammering share prices in listed project developers. By 1620 GMT, the ICE CER December 2011 contract was trading at an all-time low of 5.85 euros, down 8.6 percent on the previous day’s settlement.

Shares in companies that source U.N. offset credits were badly hit by the falls in CER prices, as Camco International’s valuation fell 10.1 percent to 7.88 pence, while Trading Emissions saw its share price tumble 7 percent to 43 pence.

A 6 euro CER price is seen as the minimum cost to generate offsets from primary CDM projects, and traders warned that many originators will incur a loss if they sell at current levels.

Many project developers including Camco are thought to have some of their portfolio unhedged, but have not disclosed how many credits are exposed to the current plunge in prices.

Trading Emissions’ financial report for the year ending 30 June 2011 stated the group’s average weighted CER acquisition price was 6.71 euros, a nearly 15 percent premium on the current December 2011 rate.

The dive in CER prices came amid thin liquidity, with few buyers willing to support falling prices.

“Nobody will want to buy CERs unless the swap with EUAs is attractive enough,” said one trader, who added that traders would still want a 2.50-3 euro discount to EUAs despite weaker prices.

The spread discount between front-year EUAs and CERs was pegged at around 2.58 euros.

The bellwether EUA contract had opened at 9.08 euros but selling gathered momentum late in the afternoon, falling to the session low at the time of writing.

Energy and equity prices also fell on Wednesday as euro zone debt worries were compounded by one of the most difficult sales of German bonds since the launch of the euro, underlining the lack of appetite for risk in the single currency region.

The 2012 baseload German power contract on EEX fell 1.1 percent to an eight-month low of 53.80 euros/MWh, also pulled lower by milder weather forecasts for much of Europe.

Meanwhile, front-month Brent crude oil trading shed more than $2 on Wednesday to $107/ barrel as weak economic data from the U.S. and China raised expectations of falling demand from the world's two largest oil users.

However, another emissions trader explained that carbon prices had fallen much further than energy markets “because massive auction volumes don't happen in oil”, a reference to the imminent sale of the EU’s pool of 300 million allowances.

The volatility in carbon prices led to a pick-up in trade with more than 27 million EUAs of all vintages changing hands at the time of press.

Ends --

Thomson Reuters Point Carbon

www.pointcarbon.com