MF Global Weekly CDM & VER Market Summary 19th – 25th October 2009

Voluntary trading activity strengthened on the week with market participants looking to fill end of year positions. Demand is focusing on charismatic pre-CDM RE VCU credits from South America, South East Asia and Africa currently $4/5.50 bid/offered. Standard Issued Indian RE pre-CDM VCUs continue to transact at $3.75–$4.50 levels while demand for Chinese VCUs has waned leading to pricing levels of $2.75-$3.25.

US CAR CRTs remain the most popular offset with the unveiling of ‘chairmans mark up’ of the Boxer – Kerry bill and a week of legislative meetings dominating the headlines. CRTs are a front runner for pre compliance early-action credits with projects holding at $7/8 bid/offered.  Demand persists around 5 year forward strips of all approved protocols. US VCU Interest is increasing with participants advocating greater value for money. VCUs are currently $4/6 Bid/Offered.

Gold Standard interest remains around African projects despite the majority being at validation stage. African offsets are €9/€11 bid/offered with discounts for early financing. Non-African issued GS VERs are €7/8 while forward credits are €5-€6 bid/offered.

The Dec09 CCX CFI settled at $0.10 with a miniscule 1,000 tonnes total exchanged ahead of a decisive week for US climate policy.

Privately negotiated transactions totaled 10,000 tonnes (100 CFI contracts).

10,000 tonnes US Landfill Methane $0.80

The Dec 09 secondary CER contract closed the week up €0.20 at around €13.35. Carbon tracked softening German power, UK Gas and Brent crude oil prices late in the week eating into earlier gains. Market commentators attributed the dip in levels to industrials and financial institutions selling to take profits.

The Senate environment committee released an updated Kerry – Boxer bill late Friday detailing the distribution of allowances under a proposed cap and trade scheme. There were several changes from the bills initial release September 30^th though it continues to borrow heavily from the successful Waxman-Markey bill which passed in the House. Boxer-Kerry allocates 75% of free allowances in 2012 while Waxman-Markey made provisions for 85% of permits. Both differ from President Obama’s vision of 100% auctioning of allowances with amendments seen as a way to ease compliance costs for US business. Under the mark up 35% of total allowances would be allocated to the electricity sector to help protect consumers from pricing spikes. Allowances would then be phased out from 2026 to 2030. Boxer – Kerry differs from Waxman – Markey on supplemental allocation reserved for deficit reduction, market stability and additional investments. Boxer – Kerry would reserve 3.5 billion permits from 2012 – 2050 compared to 2.7 billion in Waxman-Markey with the aim to improve ‘increase price certainty’. The Senate bill would distribute 3.75% of reserve allowances from 2012 – 2025 to supplement schemes with an additional 2% held back to stabilise allowance prices once they reach a $28 a tonne threshold price in 2012. Boxer-Kerry also withholds 4% of total allowances in 2012 – 2013 and 15% in 2014 – 2015 to protect vulnerable industries from international competition. Free permit levels would decrease from 2016 onwards dependent on emissions targets. Additional measures include 5% allocation from 2012 – 2025 to prevent tropical deforestation and build capacity to generate international deforestation offsets and 10% of permits in 2012 decreasing to 4% in 2022 for investment in renewable energy. US EPA stated that under the Senate bill consumers would incur slightly higher costs than the House bill estimated at $80 – $111 per year.

Australia’s Labour government re-submitted the CRPS climate bill to parliament late last week while still attempting to negotiate its safe passage with the opposition coalition. The bill was defeated in August 2009 and with Labour still 7 votes short of a majority, concessions maybe required on key issues such as the levels of compensation for coal and trade exposed industries. If legislation is successful Australia’s ETS will be implemented July 2011. Senate debate on the bill will begin mid-November with the government determined to pass the law before entering UN talks at Copenhagen in December.

Canadian industry and green groups have submitted recommendations for an economy wide domestic cap and trade ETS. Participants including Rio Tinto, Royal Bank of Canada and the World Wildlife Fund proposed an absolute cap on emissions to cover all GHGs from the schemes inception and transitioning from partial allocation to full auctioning of allowances. The programme should be simple with a clear schedule for implementation and be designed with the capability to link to global cap and trade schemes. Canada’s government have delayed passing climate legislation instead submitting the ‘Turning the Corner’ plan which advocates setting intensity based caps on large emitters. Environment Minister Jim Prentice stated the government will release GHG regulations by UN talks in Copenhagen in line with emission reduction goals of 20% below 2006 levels by 2020.

Emissions from 40 industrialised nations increased by 1% from 2006 to 2007 according to UN data. Countries including the EU, US and Russia emitted 18.1 billion tonnes of CO2 which fell 3.9% below 1990 levels of 18.48 billion tonnes mainly due to the collapse of eastern bloc economies. However there was an overall 3.1% increase of emissions between 2000 – 2007 excluding GHGs from land use, land use change and forestry.

The UN has launched a free to use forestry satellite enabling developing countries to monitor deforestation and forest degradation. The UN’s Food and Agriculture Organisation stated the system would provide transparent, accurate and cost effective observation for nations aiming to participate in the global REDD mechanism.

CDM executive board refused to reinstate verifier Japan Consulting Institute following findings of non compliance with auditing rules. The ruling excludes JCI from validating and verifying CDM projects who are involved in the validation of 50 to 60 new projects. JCI’s manager, Hideyuki Sato, has asked for a review of the decision stating that the company has been swamped by enquiries from project proponents.

Norway will include aviation emissions in its domestic ETS. The non EU-member stated that airlines would be allocated free allowances equivalent to the number of flights taken in 2010. Iceland is expected to do the same expanding the EU directive to European Economic Area and European Free Trade Association countries. Companies that fly from Norwegian airports will have to submit allowances equivalent to emissions produced for these routes with an obligation to report emissions data from January 2010.

VER Statistics
Source: APX; CCX; CAR; Markit

APX GS Registry: 126 (+0) Projects Listed
APX VCS 77 (+3) Projects with Issued VCUs
Markit VCS Registry 59 VCS (+2) Public View Projects
CCX CFI weekly volume 1kt (-384kt)
CAR: 74 (+4) Projects Listed; 1.68Mt CRT issued

CDM Statistics
Source: UNFCCC

Total Issued CERs: 336.2Mt              Issuances: 1309
Total CERs Requested: 9.24Mt        Host countries: 58
Registered Projects: 1867 (+10)    Requests: 105

A new poll released by the Pew Research Centre has found the number of Americans that believe pollution is contributing to climate change declined 20% over the past 2 years.  Only 57% of Americans believe there is solid evidence that the global climate is warming.   In contrast however, the poll reported that half of Americans remain in favour of putting limits on CO2 emissions and making companies pay for their emissions, which are the basic tenets of the cap and trade bill now before the Senate.  Additionally 56% of Americans want the US to join the international community in a global agreement on climate change.

To request live project pricing information or to discuss any of the above, please contact Grattan MacGiffin or Gareth Turner in London on +44 20 7144 5780; Mary Haskins in New York or Akshat Jaswal in Singapore

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Posted on October 26, 2009 · in Market Summary