updating this with ice stuff... "We expect to launch new contracts early next year for
CERs eligible for the EU in the post-2012 period," said Henrik
Hasselknippe, a managing director at The Green Exchange, a group
including Chicago-based CME Group Inc. "The discussion among
regulators will continue for several months. We are not going to
sit back and wait for that to conclude."
+------------------------------------------------------------------------------+
CO2 Exchanges Ready Contracts as EU Weighs Ban on Some Offsets
2010-11-26 00:00:01.5 GMT
By Ewa Krukowska and Mathew Carr
Nov. 26 (Bloomberg) -- The European Union proposed a ban
from the start of 2013 on tradable credits linked to certain
industrial gases, prompting exchanges to begin creating new
futures contracts to reflect a change in emissions regulation.
The regulatory arm of the 27-nation EU is taking aim
against projects that may create "excessive" profits for
investors and undermine the market's integrity. The EU said
yesterday it wants to prohibit United Nations credits related to
hydrofluorocarbon-23 and some nitrous oxide credits. The news
widened the price gap between UN Certified Emission Reductions
and EU allowances for 2012 to the most since May 20, 2009.
"We expect to launch new contracts early next year for
CERs eligible for the EU in the post-2012 period," said Henrik
Hasselknippe, a managing director at The Green Exchange, a group
including Chicago-based CME Group Inc. "The discussion among
regulators will continue for several months. We are not going to
sit back and wait for that to conclude."
More than 11,000 facilities in the EU system, the world's
largest cap-and-trade program, are allowed to use UN credits as
a cheaper way to comply with pollution quotas. Regulators around
the world are clamping down on HFC-23, whose warming potential
is 11,700 times more powerful than carbon dioxide. Officials at
the UN carbon market called for a revision of its procedures.
"The acceptance of credits from industrial-gas projects
has been controversial for some time," the European Commission
said yesterday in a statement. "Certain gases have a very high
global-warming potential, and abatement is very cheap. This can
create huge financial rewards for project developers."
EU Cornerstone
The commission proposed banning the use in the EU system of
UN credits linked to HFC-23 and nitrous oxide from adipic acid
production from the Clean Development Mechanism, the world's
second-biggest CO2 market, and the Joint Implementation program.
The EU emissions-trading program is a cornerstone of
European efforts to tackle the heat waves, storms and floods
tied to climate change. The system, started in 2005 with a
three-year trading period, is now in a second phase and will
enter a third stage running from 2013 through 2020.
UN CERs are awarded to pollution-cutting projects in
developing nations under the CDM. Installations in the EU
program can now swap as many as 1.6 billion UN credits with EU
permits on a one-for-one basis. The EU average annual emissions
cap for that period is 2.04 billion tons of carbon dioxide,
valued at around 31 billion euros at today's prices. One permit
represents one ton of CO2.
Enough to Go Around
"There are expected to be enough credits available from
the 2,300 other projects (non HFC-23, non-N2O) to supply the EU
ETS up to the limit allowed over the next 10 years, without
including any new credits from sectoral crediting," the
commission said. "Therefore allowance prices should be
relatively unaffected."
CERS for delivery in 2012 dropped 2.1 percent to 11.47
euros at yesterday's close on the ICE Futures Europe exchange in
London.
Given the uncertainty about the UN market after 2012,
exchanges don't offer benchmark futures for 2013 or later. ICE
Futures's CER contract for delivery in March 2013 dropped 5.5
percent at yesterday's close to 10.56 euros, a record low.
"There will be a marked difference between current CER
contracts and the contracts structured for post-2012 delivery,"
Hasselknippe of the Green Exchange said.
"The exchanges now have to set up new contracts," said
Emmanuel Fages, an analyst for Orbeo in Paris, said yesterday by
phone. Orbeo is the carbon venture of Rhodia SA and Societe
Generale SA. "Now, you don't know what you are buying."
'Higher Prices Today'
EU allowances for 2012 fell 0.5 percent to 15.83 euros
yesterday on ICE. The spread between the two futures, traded as
a separate contract, widened to 4.35 euros, constituting the
biggest discount on UN credits in 18 months.
A ban on the industrial gases would lift EU permit prices
over the next few years because it removes some supply in that
period, said Trevor Sikorski, an analyst at Barclays Plc's
investment bank.
"The impact is higher prices today and slightly more
moderate prices in the future," as the restrictions shift
offset use towards 2020, Sikorski said yesterday in a phone
interview from Amsterdam.
Carbon traders have said delays in issuing UN offsets and
the possibility of new EU restrictions may leave them with
credits that can't be used in the third phase of the EU's carbon
program or in the current trading period.
The proposal to ban credits linked to HFCs is
"retrospective" and may be driven more by politics than
environmental concern, a traders association said.
'Retrospective'
"The decision will apply to the final true-up of phase two
of the EU ETS and is therefore retrospective in nature,"
the Carbon Markets & Investors Association said yesterday in an
e-mail. The group is referring to the period between the end of
2012 and the April 2013 deadline when power stations and
factories must hand in emissions permits.
The European Commission didn't supply the data to back up
its assertions against HFC-23 projects, the association said.
"The impact assessment makes assertions about the environmental
integrity of certain project types but produces no data to back
these. In the absence of this data, the restrictions appear
political rather than environmental in nature."
The commission proposal will require EU member state
approval to become binding. Climate Commissioner Connie
Hedegaard, who has also called for international action to phase
out the production of HFC, said on Oct. 15 the bloc's nations
will likely support the proposed curbs on offsets.
Cancun's Agenda
The EU climate change committee, composed of national
officials and chaired by the commission, will first discuss the
proposal on Dec. 15, according to yesterday's statement.
The future of the UN carbon market and other proposals to
cut greenhouse gases will be on the agenda when envoys worldwide
meet Nov. 29 in Cancun, Mexico. They will discuss a climate-
protection framework for when limits in the 1997 Kyoto Protocol
expire at the end of 2012.
"Restrictions on credits from HFC-23 and N2O destruction
from adipic acid production may improve the prospects in the UN
negotiations to agree on CDM reform and the creation of new
mechanisms," the commission said. "The CDM should be reformed
in such a way that its environmental integrity is improved while
focusing on least-developed countries."
While HFC-23 projects represent less than 1 percent of all
registered UN offset projects, their credits account for 69
percent of about 465 million offsets issued so far. The 19
projects cutting the gas under the CDM program are located
mainly in China and India.
For Related News and Information:
Emission market news: NI ENVMARKET <GO>
Today's top energy stories: ETOP <GO>
European power-markets home page: EPWR <GO>
--Editors: Mike Anderson, Alex Devine.
To contact the reporter on this story:
Ewa Krukowska in Brussels at +32-474-620-243 or
ekrukowska@bloomberg.net;
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net
