Weekly CDM and VER market summary - 20-26 July 2009

Voluntary trading has slowed during the summer period with most market participants taking annual leave. Demand remains dominated by small clips of either exotic RE or bargain priced VCUs.

Issued, recent vintage, RE VCUs from SE Asia, South America and Africa are transacting at $4-5; credits from China and India are trading at $2.50-3.50 levels. American VCUs are holding steady at around $5.

Gold Standard demand has slowed as buyers hold on for interesting projects from unusual locations. Price levels remain at €8-9 for issued credits with a wide spread of €7-10 for forwards.

Interest in US CAR CRTs remains strong with sellers setting bullish ask levels for bidders. However, the inclusion of Mexican LFG projects and the expansion of locations and methodologies, including to-be-completed Brazilian and Mexican forestry protocols are promoting an assumed future international outlook with improved liquidity and could stabilise pricing.

OTC "carrots" have ticked up to mid $7 levels for early stage projects with forward vintages of registered projects attracting post $10 levels.

The 2009 CCX CFI settled the week at $0.50, the lowest level to date with traded volumes constricting by over 1.7 million tonnes to a miniscule 116,900 total tonnes. The vintage spread remained wide with volumes offered from 2004-10.

The Dec 09 secondary CER contract closed the week up around €0.05 at €12.83 despite minimal volume being exchanged. Carbon tracked a slight upward movement in oil prices while UK gas and European coal levels remained stable.

VCS changes Canada offset rules

Canadian project developers are no longer required to prove that domestic voluntary emission reductions cancel out Kyoto AAUs to achieve VCS status. The Voluntary Carbon Standard streamlined the approval process in response to the improbability that Canada will achieve its Kyoto reduction target of 20 per cent below 2006 levels by 2020.

To date no Canadian projects have generated VCUs in line with rules to prevent double counting, stating countries with Kyoto targets can only achieve VCS approval if corresponding AAUs are cancelled. However, the VCS board concluded the requirements are not applicable to Canada due to there being no current framework or likely future regulatory scheme in place to implement the Kyoto protocol. The government stated full regulations and legislation will be unveiled at climate talks in Copenhagen in December.

Australian opposition proposes cap-and-trade reforms

Australian government opposition on Friday released a nine point list of proposed changes to the CPRS domestic ETS which must be addressed before they will support the scheme due to be voted on August 13th. The demands include protection for workers from emissions intensive industries and new measures that would allow the country to tweak legislation to mirror US laws.

The Labour government failed to win support for the CPRS but recent polls showing strong support for Kevin Rudd have caused opposition fears of an early election if the bill is defeated. Under CPRS the highest emitting sectors will receive between 65-95 per cent of free allowances with the coal industry excluded from applicable industries.

EU delays aviation cap-and-trade announcement

The European Commission postponed the publication of data required to implement an aviation emissions cap. Data compilation expected for 2 August will take several more months as EU ETS allowances are calculated from average historical aviation figures between 2004 and 2006.

Beginning in 2012 the aviation sector will be included in the cap-and-trade scheme, with a full list of allowances scheduled to be published by September 2011. In far reaching legislation, all international airlines landing in the EU will be included in the scheme with a comprehensive list to be published outlining the firms included. Airlines will have to monitor annual carbon emissions from 2010 with free allocation of permits totaling 97 per cent in 2012 and 95 per cent from 2013 onwards.

China ups feed-in tariffs

China has increased feed-in subsidies to new wind farms to promote local switching to wind power from cheaper coal. The National Development and Reform Commission set tariffs for new plants at between 0.51 yuan and 0.61 yuan per KWh depending on the region.

The move is seen as a response to supplementary UN scrutiny of projects due to inconsistencies regarding additionality and auditing. Tariffs differ from design phase to implementation which the Chinese government attributes to direct negotiation of fees between project developers and grid operators in differing locations.

NZ emissions climb

New Zealand's energy emissions rose by 3.6 per cent in 2008. Electricity producers, transport and industrial sectors emitted 34.26 million tonnes, an increase of 1.2 million tonnes on 2007, largely due to an increase in coal usage. A lack of rainfall reduced hydro-electric production. Transport remained the highest emitting sector despite a drop in emissions due to high oil prices.

NZ energy sector emissions have grown 44 per cent since 1990 with electricity emissions soaring 120 per cent between 1990 and 2008. Agriculture represents nearly 50 per cent of the countries emission, however due to reductions from forestry projects NZ will likely meet their Kyoto target of holding emissions at 1990 levels between 2008-2012.

Australia approves REDD project

Australia has approved its first REDD forestry project. The Tasmanian avoided deforestation project will protect 860 hectares of forest and generate 140,000 credits over a 50 year period and is approved to CCBS standard. Australia's CRPS only accounts for reforestation projects but advocates of REDD are lobbying the government for inclusion in a future cap and trade.

VER Statistics
APX GS Registry: 110 (+0) Projects Listed
APX VCS: 39 (+1) Projects with Issued VCUs
CCX CFI weekly volume: 116,900 (-1,709,500Mt)
Climate Action Reserve: 52 Projects Listed (9 Issued)
TZ1 VER Registry: 44 VCS (+1) Public View Projects

Source: APX; CCX; CAR; TZ1

CDM Statistics
Total Issued CERs: 314.6Mt Issuances: 1,181
Total CERs Requested: 0.49Mt Host countries: 55
Registered Projects: 1,740 Requests: 68

Source: UNFCCC

This report was provided by MF Global, a leading broker in exchange-traded futures and options

For more details on the company's carbon market activities contact Gareth Turner at gturner@mfglobal.com

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