The United Nations emissions market will break into two distinct classes as early as this year, setting up some credits for discounts of as much as 50 percent by 2016, according to analysis by Bloomberg New Energy Finance.
UN Certified Emission Reduction credits valid under the next phase of the European Union carbon market may rise to about 24 euros ($33.40) a metric ton by 2016 from 12.92 euros today, according to a forecast by Aimie Parpia, an analyst in London at Bloomberg New Energy Finance, which provides research and data on the carbon markets. Credits banned by the bloc may be valued at about half that much at 12 euros a ton, she predicted.
The European Commission, regulator of the EU market, is expecting to publish a so-called “impact assessment” regarding offset restrictions by November. The commission is seeking to limit the use of credits from projects deemed improperly regulated or yielding excessive profits for developers. It may later propose a ban on credits from hydrofluorocarbon-cutting projects and others that reduce gas at industrial plants.
Any EU ban on UN credits will clearly “have an impact on investor confidence in the Clean Development Mechanism,” the UN-overseen program that creates them, Parpia wrote. “No business likes to see the rules change halfway through an investment cycle, and the effect of the ban would have material financial consequences.”
The ban would boost total compliance costs of the EU carbon market by 18 percent, New Energy Finance estimated. UN credits accepted under the program would closely track EU allowances through about 2015, because the ban would effectively curb supply of CERs, Parpia said.
Last week, CERs were trading at a discount of 2.10 euros a metric ton to EU allowances.
Quality Restrictions
Quality restrictions may apply as early as Jan. 1, 2013, according to EU guidance published Dec. 17, 2008. It’s not clear if those restrictions may apply to offsets surrendered from that date for compliance in the second phase, the five years through 2012, said analysts including Trevor Sikorski at the investment bank of Barclays Plc in London.
Emitters have four months after Dec. 31, 2012, to hand in allowances or offsets to match their emissions for that year, the final compliance year in the phase.
Should the EU delay the date when restrictions apply, “you would expect to see the UN market split later,” she said.
