EU Carbon Permit Price Gains May Outpace UN Credits

| Sourced From |

June 23 (Bloomberg) — European Union carbon emission permit prices, which increased 22 percent this year, may extend gains while comparable UN certified emission credit units may lag behind, Nomura International Plc’s analyst said.

Prices of EU’s emission permits may rise to 20 euros ($24.50) a metric ton this year because of demand in the EU, said Laurent Segalen, managing director for commodities trading at Nomura International. That’s 30 percent higher than current levels.

“Prices of UN Certified Emission Reduction (CERs) credits may not climb as much because companies tend to sell the credits when they rise,” London-based Segalen said in an interview at the Carbon Markets Asia conference in Singapore. “They don’t go very long.”

The global economic recovery has led to greater demand for power from utilities and factories that must curb greenhouse gas emissions, boosting the need for carbon credits of all types. About 11,000 factories and power stations are in the EU program where emitters with spare permits can sell them, while those that exceed their allocations can buy them on the open market or in auctions.

Prices of carbon credits originating in the EU and from the UN Clean Development Mechanism (CDM) move in tandem while the gap between them may narrow or widen, depending on need and regulations, Suzanne Chew, regional manager for carbon markets at TFS Green in Singapore, said in an interview yesterday.

China, India

CDM projects, which typically don’t face carbon laws in their home countries, may prefer to sell their credits when prices rise more than 14-15 euros, Segalen said. Projects in China and India, which contribute more than 70 percent of CERs, don’t face emission caps and don’t need credits.

Utilities under the EU emissions program may hold allowances instead of selling them on higher prices on concern that they may need to buy them back to mitigate their emissions.

EU allowances for December delivery fell 3.2 percent yesterday to 15.34 euros a ton on London’s European Climate Exchange. UN CERs for December fell 2.3 percent to 13.13 euros a ton. EU allowances have risen 22 percent this year and UN credits have climbed 20 percent.

Supplies may shrink as the EU distributes fewer allowances and switches to auctions, said Segalen, head of commodities and environment at Nomura Holdings Inc.’s international unit. Emitters with surplus allowances may hold the units as prices of EU permits rise.

Global Emissions

The CDM mechanism allows companies in developed countries to offset their greenhouse gas emissions by paying for reductions in pollution output in developing nations. The CDM market was valued at about $20.2 billion last year, the World Bank said last month.

World carbon-dioxide emissions from energy use fell about 1.4 percent last year on reduced economic activity, according to an analysis of BP Plc data. Nations released a combined 31.2 billion metric tons of the greenhouse gas in 2009, down from 31.64 billion tons in 2008, according to Bloomberg calculations based on data and conversion factors in BP’s annual statistical analysis. That was the first decline since 1998. Global emissions rose about 1.8 percent in 2008, BP estimated.

–Editors: Jane Lee, John Chacko.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at [email protected].

To contact the editor responsible for this story: Jane Lee at [email protected].

Posted on June 25, 2010 · in Europe

Tagged as: carbon credits • Carbon Emissions • Carbon Markets