Weekly CDM and VER market summary 12-18 October 2009

VER demand was again firmer than in previous weeks with issued Indian RE pre-CDM VCUs transacting at $4–$5, and Chinese VCUs discounted at $2.75-$3.25 levels.
African micro-scale projects remain the preference for Gold Standard VER interest with soon-to-be-issued credits favoured. African GS VERs are priced at €9/€11 bid/offered, a premium of €2-3 over non-African, issued GS VERs which is causing some demand to revert back to issued credits. Forward credits are €5-€6 bid/offered.

CAR CRTs are the US offset of choice currently as Buyers consider them a strong bet as eligible early-action credits for grandfathering purposes. Credits from registered projects remain $7/8 bid/offered with demand continuing to focus on five year forward strips.

Interestingly, some US carbon market participants are eyeing African VCU credits as an entry opportunity into the international market, as well as for allowing differentiation from competitor portfolios.

The Dec09 CCX CFI closed down $0.05 at $0.10. Trading rallied at the beginning of the week after which volumes slowly petered out. Total volume exchanged was 385,000 tonnes (3,850 CFI contracts), more than 300,000 tonnes greater than the previous week, with interest focused on the 2008-09 vintages.

Privately negotiated transactions totaled 1,600 tonnes (16 CFI contracts), including 1,000 tonnes US Landfill Methane traded $0.90; 200 tonnes US Ag soil carbon traded $0.75; 200 tonnes US Renewable energy traded $0.75; 200 tonnes US Ag methane traded $0.80.

The Dec 09 secondary CER contract settled at around €13.15, up €0.70c on the week. Carbon rose early in the week tracking the upward trend in crude oil, but slid later amid weakening German power pricing and buyer caution.

Democrats optimistic climate bill will pass

Senator Boxer and Energy Secretary Stephen Chu said last week there is still a chance of passing a climate bill in Congress before Copenhagen.

However others suggest that while the bill will pass through a number of committees, it is unlikely to reach consensus before December. John Pershing, the US negotiator, stated at Bangkok that it would be "difficult, but not impossible" for the US to commit to a specific GHG reduction number without confirmation from Congress.

There is an expectation that the US will come to Copenhagen with a national target. Copenhagen uncertainty has led some to expect a US climate bill enacted in H1 2010. This would then lead to emission reduction targets and funding plans for developing countries to be agreed by at the UN meeting in Bonn in June 2010.

US offset deal breaks record

Project developer Blue Source and climate fund CE2 Carbon Capital completed the largest voluntary US offset deal to date. The North Carolina forestry CRTs and LFG and CMM VCU deal was worth $12 million.

Finland upgrades carbon target

Finland's government adopted a long term climate goal pledging 80 per cent GHG emission reductions by 2050 from 1990 levels. The energy policy states that targets will be binding only if other countries commit as part of an international effort. The country has already approved EU reduction levels of 20 per cent from 1990 levels by 2020 and to increase overall renewable energy output to 38 per cent.

Boxer sets out climate bill timeline

US Senate Environment Committee chair Barbara Boxer outlined an early November timeline for the markup of the Boxer-Kerry cap and trade bill.

Hearings for the 19 member panel will begin 27 October with Energy Secretary Stephen Chu expected to testify. Markup will begin either 2nd or 9th November to address key omissions such as allowance allocation.

Malaysia outlines palm oil regulations

Malaysia wants to regulate monitoring of the environmental impact of palm oil, following criticism over emissions and EU scrutiny.

From 2010 the EU will impose targets to only accept biodiesel that can reduce CO2 by at least 35 per cent versus fossil fuel. Currently palm oil only makes a saving of 19 per cent risking exclusion with environmentalists who cite the sector for the loss of vast areas of tropical rainforests, and the production of 400-900 kilograms of harmful methane per tonne of crude palm oil.

Lifecycle studies conducted by the Malaysian Palm Oil board show that palm oil methane capture mills can achieve 62 per cent GHG reductions however only 4 per cent have been equipped to date.

Australia climate bill debate continues

Australia's opposition party presented amendments to the CPRS with a focus on saving domestic jobs and limiting energy price increases.

The opposition wants to provide trade-exposed firms 94.5 per cent of free emission permits until 2015 and 90 per cent post-2015, until 80 per cent of international competitors have adopted similar reduction targets.

Opposition leader Malcolm Turnbull called for intensity based targets for electrical generation while supporting coal-fired power plants with an additional 10 years of free permits on top of the government's proposed five years.

Agricultural and CMM emissions should also be permanently omitted from legislation and "white certificates" issued to those that take voluntary action allowing their use for compliance purposes, according to the opposition. The government requires seven additional votes for CPRS to begin in July 2011.

Tesco sets zero carbon target

Tesco pledged to become a zero carbon company by 2050 without the use of offsets. The world's third largest retailer aims to achieve a 30 per cent supply chain carbon reduction by 2020, starting in the UK.

Tesco along with other leading firms including Unilever, Coca-Cola, SC Johnson and Reckitt Benckiser have agreed to work together to aid consumers in reducing emissions from retail products.

VER Statistics
APX GS Registry: 126 (+3) Projects Listed
APX VCS: 74 (+2) Projects with Issued VCUs
Markit VCS Registry: 57 VCS (+0) Public View Projects
CCX CFI weekly volume: 385kt (+318.7kt)
CAR: 70 (+0) Projects Listed; 1.65Mt CRT issued

Source: APX; CCX; CAR; Markit

CDM Statistics
Total Issued CERs: 335.3Mt Issuances: 1,302
Total CERs Requested: 6.3Mt Host countries: 58
Registered Projects: 1,857 (+14) Requests: 90

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

This report is issued by MF Global UK Limited, which is authorised and regulated by the Financial Services Authority. References to MFG in this report shall mean MF Global UK Limited unless otherwise stated. The report was prepared and distributed by MFG for information purposes only. The report contains information and opinions, which may be used as the basis for trading undertaken by MFG and its officers, employees and associated companies. The report should not be construed as solicitation nor as offering advice for the purposes of the purchase or sale of any security, investment, or derivative. The information and opinions contained in the Report were considered by MFG to be valid when published. The report also contains information provided to MFG by third parties. The source of such information will usually be disclosed in the report. Whilst MFG has taken all reasonable steps to ensure this information is correct, MFG does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at their own risk and MFG does not accept any liability as a result. Securities and derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Registered Office: Sugar Quay, Lower Thames Street, London, EC3R 6DU. Registered in England No. 1600658.