Weekly CDM and VER market summary 21-27 September 2009

VER market activity continues to improve with demand growing for VCUs and Gold Standard credits weekly. Small clips of "exotic" Pre CDM RE VCUs continue to transact at $4/5 levels commanding a $1/2 premium to "standard" Chinese and Indian RE VCUs.

Gold standard interest is increasing with counterparties focusing on either small clips of issued credits or non typical projects in early development. Issued credits are €8/9 bid/offered while premium forwards are €10/11 bid/offered. Africa remains the "must have" location across standards with methodology and pricing playing a less significant role in decision making.

US voluntary carbon offsets persist in usurping European credits on volume demand. CAR CRT orders remain focused on 200 – 400K tonne, 5 year strips ranging from 2009 – 2018, with an increasing flight toward percentage pre-payment.

Supply shortage continues to promote interest in LFG projects currently $6.50/7.50 bid/offered.

Speculators are now looking to capitalise on possible future protocols through financing N20 Gas, Coal Mine Methane, Ozone Depleting Substances and organic waste digestion projects in early stages at $3/5 bid/offered.

CCX CFIs settled at $0.20 cents across all vintages unchanged from the previous week. A total volume of 176,800 tonnes traded on the exchange. Privately negotiated transactions totaled 1,254 CFIs (125,400 tonnes) 100,000 tonnes US

• Ag Soil traded $0.70
• 1,200 tonnes US CMM traded $2.70
• 23,800 tonnes US LFG traded $0.50
• 400 tonnes US Organic Waste traded $0.80

Poland and Estonia win cap appeal

The Dec 09 secondary CER contract closed the week down around €0.67 at €11.98 amid a week of controversy. Poland and Estonia's appeal victory over the EU regarding national allocation plans for 2008–2012 opened the way for several other countries leading to a possible extra 164 million EUA's per annum.

Subsequently Italian Prime Minister Silvio Berlusconi issued a letter to the EC asking to renegotiate Italy’s national allocation plan. The EC dismissed the Italian letter but the events fueled heavy selling in the markets.

China to cut "carbon intensity"

China pledged to cut "carbon intensity" per unit of GDP by a "notable margin " by 2020 from 2005 levels. President Hu Jintao made the statement at the UN summit in New York, signaling the largest GHG emitting country's first recognition to the world of its important role in climate change.

The President also outlined the rigorous development of nuclear energy; an increase in forest coverage of 40 million hectares by 2020, and a renewable energy target of 15% by 2020.

The reductions add further weight to China's aim to cut energy consumption per unit of GDP 20 per cent by 2010 from 2005 levels. The commitments, despite not including specific figures, are a significant departure from developing nation rhetoric that climate targets would prevent economic growth and hinder the fight against poverty. China's climate change head promised figures will follow with the National Statistics Bureau already preparing calculation methods for estimated regulation from 2011.

US President Obama, implied developing nations with a strong industrial base (i.e. India, China and Brazil) must accept emissions curbs in order for an international agreement to be reached, however he did suggest poor nations are entitled to aid to tackle their climate issues. Obama stated the US will heavily invest in renewable energy, set new vehicle emissions standards but failed to call on the US Senate to complete climate legislation before Copenhagen in his UN speech.

UN Climate Chief Yvo De Boer said that key differences still remain in the negotiating process.

Boxer-Kerry Bill to be unveiled

The US Senate Democrats Barbara Boxer and John Kerry will release the amended Waxman – Markey climate bill on 30th September. The House bill narrowly passed in June with a 17 per cent GHG reduction target below 2005 levels by 2020 but is likely to face a difficult passage to gain the 60 vote majority required in the Senate.

UN backs transport projects

The UN methodologies panel recommended two transport schemes designed to create emission reductions from the installation of bus lanes and underground railways. Eight different ideas were rejected while a further 13 methodologies are to be examined at a sitting next month. The EB will now decide whether to endorse the project types opening the way for the creation of CERs in the developing world.

Transport accounts for 13 per cent of world GHGs but projects have been complex to implement due to large monitoring areas and numbers of people shifting from carbon intensive vehicles.

China and US strengthen ties

The Chinese/US Low Carbon Economy conference in Manhattan last week drew together experts from energy, government, banking, and environmental groups.

The focus centered on cooperation between the world's largest emitters (responsible for over 40 per cent of total global CO2 emissions). CSS and clean burning coal took center stage on the technology front (China gets 80 per cent of its energy, and the US 50 per cent of its energy from coal). There was agreement that development of technology would be cheaper and quicker in China. There was a call for "certainty" on the policy front to encourage investment from the financial community and panelists recommended the Chinese use existing, successful "standards" in developing the "Panda Standard" certification for Chinese carbon credits.

NZ votes in favour of carbon regulations

New Zealand’s government won the first vote on new carbon legislation by 63 to 58 votes in parliament last week. The National party's submission, aided by support from the Maori party, proposes major amendments to the previous Labour government's scheme adopted in 2008.

Industrial, energy and transport sectors will come under the design from July 2010 but will only be accountable for half of their emissions for the first three years. The Agriculture sector will be included from Jan 2015, a two year delay to previous law despite accounting for around 50 per cent of the country's total emissions. Exposed industries will have a fixed price option to pay NZ$25 for the first three years of the scheme with allocation based on industry average emissions as opposed to actual 2005 emissions.

Controversially an absolute cap will be removed meaning that firms achieving industry average will still receive 100 per cent free permits even if actual emissions rise while the phase out of permits is slowed under the new bill.

The bill has been met with scepticism from greens and the opposition for not being tough enough. The legislation has now been sent to the finance and expenditure committee for public submissions with the government aiming to pass the bill by end of year.

US blocks attempt to undermine EPA

Republican Senator Lisa Murkowski's (Alaska) amendment to prevent the EPA from regulating GHG emissions should the Congress fail to pass climate change legislation was successfully blocked last Thursday.

Murkowski had argued on the Senate floor that EPA regulation would be detrimental to an already fragile economy. She had called for a one year "time out" which would give the Senate time to draft a comprehensive climate bill. Senators received letters from over 30 environmental groups urging them to oppose Murkowski's amendment, and decided Murkowski's amendment would delay and confuse action regarding a climate bill.

VER Statistics

APX GS Registry: 122 (+0) Projects Listed
APX VCS: 70 (+1) Projects with Issued VCUs
Markit VCS Registry: 55 VCS (+4) Public View Projects
CCX CFI weekly volume: 176.8kt (-38.2kt)
CAR: 66 (+0) Projects Listed; 1.62Mt CRT issued

Source: APX; CCX; CAR; Markit

CDM Statistics

Total Issued CERs: 332.9Mt Issuances: 1,277
Total CERs Requested: 2.03Mt Host countries: 58
Registered Projects: 1,831 (+9) Requests: 69

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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