Weekly CDM and VER market summary - 29th June - 5th July 2009

VER trading activity intensified over the week with continued optimism buoying the market. A widening of VER credit types and of methodologies combined with the growing assumption of inclusion in the proposed US federal cap and trade scheme is driving activity in the market as evidenced by the increase of test trades in the relevant registries.

Demand persists for recent vintage, issued RE VCUs from SE Asia, South America and increasingly Africa at $4-4.50 levels.

Bid interest for US VCS and CAR projects in particular is strong. US VCS projects are $4/5 bid/offered with signs of more developers focusing on the carbon as opposed to the REC market for new projects, despite the current price differential. The spread of issued OTC CRTs has widened since the House passage of the Waxman – Markey bill, with credits from 2009 onwards eligible for the US ETS, in the draft legislation's current format.

CRT 2009 vintage credits are trading at around $7/8 increasing by $1 each vintage along the curve. CCFE CAR CRTs closed the week $0.5 higher although traders query it's pricing due to its relative illiquidity compared to the wider OTC market where the bulk of CRTs are being traded. The Dec 2009/18 10 year strip finished the week at $5.64, up $0.25 from last week, despite no volume being recorded.

The number of Gold Standard VER trades is on an upward trajectory with several contracts closing or nearing completion. Demand for small clips of issued "standard" China and Turkey wind credits has improved to its recent levels of €8-€9. In comparison, a dearth of issued GS VERs from more exotic locations is directing counterparties towards forward purchase forwards to ensure they get what they want. The bid/offer spread for these forward credits is now €6-9. CCX CFI 2009 contract settled at $0.90, up $0.30 from record lows of $0.60 set the previous week.

Volume was thin with only 316,600 tonnes traded as the markets were shut Friday in observance of the July 4th holiday. The price recovery implies cautious optimism as the climate bill moves towards the Senate for consideration.

The Dec 09 secondary CER contract closed the week up €0.21 at €11.95 on the back of falling oil prices and worse than expected US employment figures.

China and India angry at "green protectionism"

China and India last week expressed displeasure at the "Green Protectionism" clause of the Markey-Waxman climate change bill. The "carbon equalization" mandate would impose tariffs from the year 2025 on carbon intensive exports like steel and concrete. China, the world's largest GHG emitter, stated that tariffs would violate World Trade Organization rules and the spirit of the Kyoto treaty.

The protocol is designed to counter domestic industry fears of uncompetitive practice leading to job losses in rich nations. The US climate change bill makes provisions from 2012–2025 to provide allowance rebates to energy intensive industries to cover compliance costs, by which time it is hoped that developing nations would have committed to emission reduction targets. The measures could promote the development of domestic ETS schemes in emerging nations and are seen as a way of pressuring developing countries into adapting to a carbon conscious economy. President Obama has stated he is against "climate protectionism".

Brazil opposes forestry proposals

Brazil has called for historic emissions to be the basis for climate talks in Copenhagen. The proposal backed by China, India and South Africa opposes measures approved by industrialised nations that calculate emissions per dollar of GDP, allowing an increase of GHGs as economies grow.

Brazil will have a central role in post 2012 climate negotiations due to Amazon deforestation which it has pledged to reduce by 50 per cent by 2020. The government stated it will adopt binding GHG targets once rich countries make commitments to curb emissions. Brazil opposes the sale of REDD credits on the grounds that such projects would increase overall emissions due to uncertainty over permanence while assigning higher land values to degraded land, rewarding polluters.

Alternatively President Lula believes direct financing, like the $1 Billion received from Norway, holds the key to curbing the 20 per cent world GHG emissions from deforestation. Brazil does support the UN CDM reforestation methodology; however such projects have also faced delays due to permanency issues. Brazil is the world’s third largest originator of CDM carbon credits with 50 per cent of projects coming from agricultural methane and biomass, which have reduced the country's emissions by a total of seven per cent.

Yahoo ditches offsets

Yahoo last week announced that it will no longer purchase offsets to reduce its carbon footprint instead focusing on improving energy efficiency at data centres by 40 per cent by 2014. Research has shown that the IT industry is responsible for up to two per cent of global GHG emissions, on a par with aviation. Competitor Google set a goal in 2007 to become carbon neutral after criticism from environmental groups over its large carbon footprint.

PNG suspends climate change chief

Papua New Guinea suspended Dr Theo Yasause, the head of the Office of Climate Change and Carbon Trade early last week launching an investigation into the illegal sale of REDD carbon credits. PNG has no formal legal framework for the carbon process but was alleged to have signed contracts for the sale of forestry projects. The country has a considerable rainforest and has been pushing for REDD inclusion in a post 2012 Kyoto agreement along with it's South East Asian neighbours, Cambodia, Indonesia, Vietnam and Laos.

VER Statistics

APX GS Registry: 106 (+2) Projects Listed
APX VCS: 36 (+2) Projects with Issued VCUs
CCX CFI weekly volume: 316,600Mt (-365,400Mt)
Climate Action Reserve: 46 Projects Listed (9 Issued)
TZ1 VER Registry: 41 VCS (+3) Public View Projects

Source: APX; CCX; CAR; TZ1

CDM Statistics

Total Issued CERs: 310.6Mt Issuances: 1,155
Total CERs Requested: 3.92Mt Host countries: 55
Registered Projects: 1,704 Requests: 52

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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