Weekly CDM and VER market summary 28 September - 4 October 2009

VER demand remains consistent following a week of industry conferences. Higher pricing and the lack of issuance of exotic credits are promoting interest in recent vintage Indian RE VCUs currently $3.50/$4.50 bid/offered. Exotic VCUs are transacting at $1/2 premiums but are suffering from uncertainty over delivery timelines, new methodology approval and final volume size.

Gold Standard demand is improving with small clips of issued credits €7.50/8 bid/offered.

CAR CRTs maintain their domination of the US voluntary space aided by domestic climate legislation. Expanding methodology ranges and improved likelihood of inclusion are fuelling speculative trading with orders focusing on 200-400K tonne clips over five years strips 2009+ transacting at $6.50/$7.50 levels. VCU demand in the US continues to centre on forestry projects from outside of South America.

CCX CFIs bottomed out Friday at $0.10 cents having traded as low as $0.05 cents midweek in heavy volume. Market commentators attributed the drop in levels to the US climate bill's failure to mention CFIs under early action offsets. The spread narrowed focusing on 2007-2009 vintages with a considerable total weekly volume of 1,659,100 tonnes exchanged. Privately negotiated transactions totaled 501 CFIs (50,100 tonnes); 50,000 tonnes US Ag Soil traded $0.75; 100 tonnes US RE traded $0.80.

The Dec 09 secondary CER contract closed at €11.75, down around €0.23 from the previous week. Carbon traded sideways in line mirroring energy and oil levels with participants unwilling to take positions due to continued uncertainty following last weeks EU NAP court decision.

US releases new climate bill

The US Senate released the initial draft of its Climate Bill last week calling for industries that emit 25,000 tonnes of CO2 or more p.a. to reduce emissions 20 per cent below 2005 levels by the year 2020.

The cap-and-trade bill known as Boxer-Kerry will apply to roughly 7,500 entities that are responsible for 75 per cent of US CO2 emissions. The bill will permit two billion offsets p.a. to help emitters meet their pollution targets. 75 per cent of the offsets are to come from domestic projects while the other 25 per cent can come from international projects. Should there be a shortfall of offsets, the bill would accept an additional 750 million international credits.

An updated version of the bill that will detail the allowance portion of the program and how revenue raised from auctioning of allowances will be applied is expected in late October.

In announcing the bill, Kerry stated he expects a floor vote before Copenhagen, however there appears to be virtually no Republican support for the bill, and it is remains unclear if the legislation can come together before year end.

CDM pipeline faces delays

CDM pipeline delays leading to a 2.5 per cent reduction in CER supply have been forecast by UNEP Risoe.

The research organisation estimates 1.212 billion CERs will be issued by the end of 2012, 31 million fewer than previously projected, largely due to the suspension of verifiers, an increase in rejections and fewer project registrations. Demand for CERs has caused backwardation with €0.40c premiums being paid for 2009 contracts over 2010 with companies having pre sold expected issuances not yet delivered. Of the 1,834 projects registered only 566 have been issued credits with the entire pipeline consisting of 4,673 CDM projects. 581 projects have been rejected by verifiers, 122 by the UN EB while 40 have been withdrawn.

Boxer-Kerry to include gas capture

The US Boxer-Kerry climate bill will include landfill gas and CCS projects in the offset scheme which were omitted from Waxman-Markey.

Additionally, the following project types will be admitted: non landfill projects involving collection, combustion or avoidance of emissions from organic waste streams, afforestation/reforestation of acreage not forested as of Jan 1, 2009, forest management that results in increase in carbon stores, recycling and waste minimization projects, agricultural, grassland and rangeland sequestration, and land use change and forestry activities.

Eligible projects in the Boxer-Kerry bill would start after January 1, 2009, however there is a provision for early action credits (from projects started after January 1, 2001) provided they were issued by a regulatory/voluntary GHG emissions program established under state or tribal law.

Australia opens carbon credit registry

Australia's carbon credit registry opened last week providing an account platform for firms to transfer UN backed offsets. The government established a National Authority within the Department of Climate Change. The NA's role will be to manage and approve Kyoto protocols abroad for Australian firms to invest in CDM and JI projects. Australia will not host JI project until post 2012 with Climate Change Minister Penny Wong hailing the development as a "milestone".

In further developments the head of the opposition Malcolm Turnbull stated he would step down if his party failed to support emissions trading. In a change of stance, with the Liberals having voted down the first passage of the CRPS in August, Turnbull is pushing for backing of an amended scheme. If defeated a second time it could trigger a double dissolution early election with polls showing the Labour government surging ahead in the polls.

VER Statistics

APX GS Registry: 122 (+0) Projects Listed
APX VCS: 70 (+0) Projects with Issued VCUs
Markit VCS Registry: 56 VCS (+1) Public View Projects
CCX CFI weekly volume: 1,659.1kt (-1,482.3kt)
CAR: 70 (+4) Projects Listed; 1.65Mt CRT issued

Source: APX; CCX; CAR; Markit

CDM Statistics

Total Issued CERs: 333.2Mt Issuances: 1,287
Total CERs Requested: 2.64Mt Host countries: 58
Registered Projects: 1,836 (+5) Requests: 71
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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