Weekly CDM and VER market summary - 13-19 July 2009

VER trading remains consistent with demand continuing to centre on recent vintage, issued RE VCUs.

Exotic credits from SE Asia, South America and Africa are commanding $1–1.50 premiums at $4-5 bid/offered, while standard RE China and India VCS offsets are trading at $2.50-3.50 levels.

REDD forestry projects are drawing renewed interest following the Voluntary Carbon Standard posting methodology approval processes for public comment coupled with the expected future shortfall in supply of credits for the US market. Several countries including Brazil, Cambodia, Indonesia and Papua New Guinea have outlined REDD revenue and monitoring rules while running trial schemes in anticipation of inclusion in a global ETS. A wide pricing spread remains with credits offered at between €3–7 per tonne.

Gold Standard activity is sporadic as buyers await issuance of non-typical projects. Issued credits are €8-9 while small clips unusual offsets from exotic locations are trading at between €7-10.

Demand for US offsets continues to grow with buyers focusing on five year strips out to 2018. OTC CAR CRTs remain $7-8 for projects in early development with forward vintages of registered projects attracting up to $12. An abundance of US VCS offsets is holding prices at around $5.

The 2009 CCX CFI continues to slide, closing at an all time low of $0.55 despite sizable volumes trading throughout the week. A total of 1,826,400 tonnes was exchanged with the vintage spread widening to 2003 -10.

The Dec 09 secondary CER contract closed the week up around €0.70 at €12.78 in response to unexplainable strong buyer demand and a flat energy complex.

UK sets out low carbon vision

The UK government last week outlined its roadmap to meet the binding emission reduction targets of 34 per cent below 1990 levels by 2020.

Energy and Climate Change Secretary Ed Miliband stated that 40 per cent of Britain's electricity will derive from renewable sources, 31 per cent by 2020 and increase of 25 per cent on current levels.

However, the UK aims to achieve targets without purchasing international offsets believing domestic reductions will provide the best path. Despite the claim that if a global climate deal is agreed in Copenhagen Britain has vowed to deepen cuts to 40 per cent against 1990 levels leaving the door open for funding of carbon reduction projects in developing countries.

The government also aims to launch a domestic ETS for large firms not enrolled in the EU trading scheme. CCS technology remains a key pledge with funding being made available for four CCS trails with new coal powered plants being fitted with the technology. Cleaner transport will provide a fifth of reductions by 2020 with subsidies provided for electric cars. Energy efficiency on homes will deliver 15 per cent reductions with smart meters installed in every home by 2020. The low carbon sector is expected to grow during recession to employ over 1.2 million people by 2015. The governments Low Carbon Transition Plan reported that climate change policy will increase average household energy bill by eight per cent.

UN approves Mexican light bulb project

The UN has approved a Mexican programmatic CDM compact fluorescent light bulb (CFL) project which is designed to deliver carbon reductions to a mass market in developing nations. 30 million CFLs will be distributed in stages over the next three years generating up to eight million Certified Emission Reductions (CERs).

The new approach is seen as a departure from the traditional structure, which has been criticised for focusing on individual projects and attracting high administration costs.

Programmatic CDM allows economies of scale in line with approved standards and methodologies. To prevent resale of CFLs post distribution there will be strict household monitoring and narrow supply with each house receiving four CFLs in exchange for providing four incandescent bulbs.

IMO agrees to emission proposals

The UN shipping agency agreed to voluntary emission reduction proposals last week. Delegates from 90 countries approved the non compulsory technical and operational measures including energy efficiency in design for new vessels.

Shipping accounts for up to three per cent of global emissions and has been under pressure to present a plan of action for Copenhagen in December. The International Maritime Organisation (IMO) argues that market based mechanisms are needed but must be directed by industry. Environmental groups believe the commitments are not wide ranging or enforceable and that more must be done.

VER Statistics
APX GS Registry: 110 (+2) Projects Listed
APX VCS: 38 (+2) Projects with Issued VCUs
CCX CFI weekly volume: 1,826,400Mt (-405,500Mt)
Climate Action Reserve: 52 Projects Listed (9 Issued)
TZ1 VER Registry: 43 VCS (+2) Public View Projects

Source: APX; CCX; CAR; TZ1

CDM Statistics
Total Issued CERs: 314.5Mt Issuances: 1,178
Total CERs Requested: 1.45Mt Host countries: 55
Registered Projects: 1,732 Requests: 61

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.