Weekly CDM and VER market summary - 22-28 June 2009

The VER market picked up over the week with positive US legislative news leading to optimism of a global emissions trading scheme. The change in mood has seen the return of smaller participants and led to the reemergence of previously dormant market locations.

Interest continues to focus on recent vintage Issued RE VCUs from SE Asia and South America trading at $4.25 levels. There is increased chatter surrounding eagerly anticipated African projects which are likely to trade at a premium. Demand for US offsets is intensifying with additional project flow weekly. Issued OTC CRTs remain $6/$7 with 5 year forward strips $5.50/$6.50 bid/offered.

However on exchange the Dec 2009 CCX CAR CRT was marked lower recovering to close at $4.75 from $4.40 midweek with 40 contracts traded. The 10 year Dec 2009/2018 strip settled down $0.17 cents from the previous week at $5.39 as the market awaited news of the Waxman Markey climate change bill. US VCUs remain $4/5 bid/offered with methane projects dominating demand.

Gold Standard inertia has lifted with several orders circulating the market for non typical projects with a wide price spread of €7 - 15 for issued and €5 - 10 for forward credits.

The Dec 09 secondary CER contract closed the week up €0.33 at €11.74. Despite minimal movement in energy prices, utilities continued to buy at "inflated" levels on future market expectations.

CCX CFIs sunk to historic lows before rallying late Friday afternoon. Long liquidation encouraged buying at bottom pricing contributing to a total weekly volume of 682,000 tons. Prices bottomed out on Tuesday with the spot 2009 CFI settling at $0.60 cents amidst uncertainty over the outcome of the US climate change bill. Levels improved to $0.80 cents Friday, still $0.15 cents below the previous week’s $0.95 cent settlement, as the bill passed the House of Representatives.

The RGGI Dec 09 V09 contract settled at $3.21, up from a low of $3.00 midweek. RGGI futures CCX reported 24,498 contracts exchanging hands.

Waxman-Markey passes

The US Waxman – Markey Climate Change bill was narrowly passed by a House vote of 219 – 212 on Friday. The Clean Energy and Security Act legislation required 218 votes to pass in the 435 seat House of Representatives and saw eight Republicans cross the floor with 44 Democrats also voting in opposition. The bill if passed will impose binding GHG reduction targets of 17 per cent below 2005 levels by 2020 and will now move to the Senate for a final vote in autumn.

Stiff opposition is expected in the Senate with Republicans stating the bill is a tax that will undermine US competitiveness. However proponents of the bill vow the laws will support national security by reducing dependence on foreign imports while increasing domestic renewable energy production. President Obama is keen to sign the bill into law before climate negotiations in Copenhagen in December.

Cambodia agrees to forestry projects

Cambodia has signed an agreement to develop REDD projects protecting 60,000 hectares while rewarding local communities. In 1994 the country emitted 12.76 million tonnes of CO2 but due to carbon storage was a negative emitter. Cambodia is eyeing future inclusion of REDD in a post 2012 Kyoto agreement but for now will operate in the voluntary market with three projects currently seeking methodology approval under VCS.

Deforestation and forest degradation are accountable for 20 per cent of global emissions but despite being identified as a key area for reductions REDD has been hindered by lack of UN backing, unclear baseline scenarios, and permanency issues.

Japanese demand for offsets to increase

Japan's industrial output rose at the fastest pace since the 1950's for the second consecutive month in May 2009 according to the Ministry of Economy, Trade and Industry. The subsequent increase in emissions will leave the country with a Kyoto deficit requiring the purchase of hundreds of millions of carbon credits. The 6 per cent rise was still 30 per cent lower than production levels in May 2008 leaving the world's 5th largest GHG emitter, a difficult task to meet its 15 per cent reduction target below 2005 levels by 2020.

Brown calls for $100bn climate fund

British PM Gordon Brown has proposed that industrialised nations allocate a $100 billion annual climate fund by 2020 to help developing countries adapt to climate change. Suggestions include partial funds being raised from aviation and shipping which are currently exempt from Kyoto targets. Britain is looking for a commitment at Copenhagen in December to limit global warming to two degrees by 2020. Green groups showed support for what is the first offer from a world leader but India believe the proposal falls short and have called for one per cent of GDP.

VER Statistics

APX GS Registry: 104 (+2) Projects Listed
APX VCS 34 (+2) Projects with Issued VCUs
CCX CFI weekly volume 682,000Mt (+445,000Mt)
Climate Action Reserve 43 Projects Listed (8 Issued)
TZ1 VER Registry 38 VCS (+0) Public View Projects

Source: APX; CCX; CAR; TZ1

CDM Statistics
Total Issued CERs: 308.1Mt Issuances: 1149
Total CERs Requested: 5.29Mt Host countries: 55
Registered Projects: 1693 Requests: 60

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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