Weekly CDM and VER market summary 31 August – 6 September 2009

Holidays are over

VER market activity is gently improving as the holiday season has receded. The clamour for US CAR CRTs and more recently, African VCUs is helping to grow demand.

As end-users increasingly specify African-originated credits, bids are being given at unusually early stages i.e. at validation, due to the demand/supply imbalance. Exotic recent-vintage RE offsets are trading at around $4/5, bid/offered with standard India and China RE offsets at $3/3.50, bid/offered. Interest in forestry projects remains, though long-dated issuances continue to affect pricing.

The US CAR CRT market continues to expand, with additional developers and buyers joining weekly. Demand is currently centred on landfill gas projects with Ag Methane and forestry credits unable to satisfy volume requirements. A widening of the forestry protocol to include all States rather than simply California may well alter this dynamic. Five-year forward strips from 2009+ out remain the Buyer’s choice, trading at $7/$8.

On exchange, the CCX CAR-CRT Futures DEC 10 non-vintage specific strip settled at $5.00; while the CCX CAR-CRT Dec10-Dec15 vintage 09 strip settled at $6.70: both had no volume posted. Spot CRTs are $5.50/$8.50, depending on methodology.

African Gold Standard projects are topping Buyer’s wish lists, attracting premiums of €1-2 over other locations. Micro-scale projects carry an additional €1-2 premium at €9/11 bid/offered.

The Dec09 CCX CFI settled Friday at $0.25 cents, up $0.05 cents on the week. On-exchange volumes were up from the previous week but still historically low with 54,900 tonnes traded. Privately negotiated transactions however were much smaller than the previous week’s, at 4,000 tonnes traded with US forestry and Ag soil projects maintaining a $2 level.

The Dec 09 secondary CER contract closed the week up €0.10c at €13.45. Utilities were seen to be selling gas and buying carbon amid softening energy prices.

India and US legislation

India aims to set energy efficiency targets for more than 700 industrial units across 9 sectors accountable for 40 per cent of the country’s fossil fuel usage by December 2010. Energy efficiency is a climate policy focus and seen as a major initiative towards implementing a domestic cap and trade scheme.

The programme will reduce fossil fuel use 5 per cent by 2015. The statement comes amid a government report that Indian GHGs will jump from 1.5 billion tonnes at present to possibly 7 billion tonnes by 2031. This would increase per capita emissions from 1.2 tonnes to 3.5 tonnes by 2030 – half the current global average.

The US Environmental Protection Agency (EPA) is set to announce CO2 as a harmful pollutant, paving the way for federal regulation of GHGs. In 2007 the Supreme Court ruled that the EPA has the authority to regulate CO2 emissions but must first determine that carbon dioxide presents a threat to the public. The finding would provide the EPA with the authority to regulate emissions from domestic vehicles and facilities. The Waxman–Markey bill meanwhile, has faced delays and is now scheduled for release in late September.

Japan's new targets

Japan’s incoming Prime Minister, Yukio Hatoyama, last week pledged a 25 per cent emission reduction target by 2020 from 1990 levels. Hatoyama’s DPJ party won a landslide victory in last month’s general election and set the target based on an expected ambitious international climate agreement at Copenhagen in December.

DPJ pledged to create an ETS scheme and the possible introduction of climate taxation. The new government’s targets are far tougher than former Prime Minister Taro Aso’s liberal Democratic Party (LDP), which set limits of 15 per cent below 2005 levels by 2020, equivalent to 8 per cent from 1990 levels.

The Climate Action Reserve has expanded its forestry methodology guidelines to include all US states. Previously only Californian forests were applicable under the scheme leading to forestry CRTs trading at $1 premiums.

The expansion greatly increases potential US carbon origination capacity, with 755 million acres of land available for inclusion. The popularity of these credits is partly due to market participants believing that CRTs will be accepted as ‘early action’ credits in a future federal cap and trade scheme.

California legislators are considering enforcing stricter renewable portfolio standards (RPS), increasing the State’s renewable energy production to 33 per cent by 2020.

Key committees in line with AB32 laws seeking to reduce emissions to 1990 levels by 2020 have already approved legislation. California air regulators believe the stricter RPS would reduce emissions by 21.3 million tonnes p.a. by 2020, 12 per cent of the total requirement.

VER Statistics

APX GS Registry: 117 (+0) Projects Listed
APX VCS 49 (+4) Projects with Issued VCUs
Markit VCS Registry 46 VCS (+0) Public View Projects
CCX CFI weekly volume 54.9kt (+35.8kt)
CAR: 61 (+0) Projects Listed; 1.62Mt CRT issued

Source: APX; CCX; CAR; Markit

CDM Statistics

Total Issued CERs: 327.3Mt Issuances: 1239
Total CERs Requested: 2.912Mt Host countries: 57
Registered Projects: 1797 (+5) Requests: 94

Source: UNFCCC