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MF Global Weekly CDM & VER Commentary 5th – 11th October 2009

Signs of a bounce in VER demand are appearing with Chinese and Indian quality wind VCUs being sought by Buyers. Recent-vintage, pre-CDM VCUs Chinese credits are transacting at $2.75-$3.50, with Indian offsets commanding $1/$1.50 premiums. Competitive pricing has led to a temporary change of focus with participants looking to bolster portfolios at bargain levels, potentially calling the bottom of the recent dip in prices. Uncertainty over forestry projects is promoting a cautious approach from buyers on both sides of the Atlantic. Exotic credit prices are diverging with some developers raising prices to $5.50 levels, citing high development costs for in demand smaller sized VCU projects.

CRTs are still the most desirable US voluntary credit type as Buyers are confident of their acceptance into a future federal mandatory carbon scheme. Spot CRTs are $7/8 bid/ offered while Sellers of forward strips are increasingly looking for up-front payments. New methodologies such as ODS are offered forward at $5-6. Interest in US VCUs is growing as speculators, in particular, weigh-up the cost benefits of trading these over the more expensive CRTs. A recent flow of reports from the US has encouraged many bidders that VCUs will also be fungible in a future US cap and trade market. However a lack of supply is curtailing wider trading activity so far. Prices have increased and are $4/$5.50 bid/offered.

Demand for Gold Standard VERs is focusing on credits from Least Developed Countries.

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