Sep 9, 2008

More On The Cost Of The ETS

CER supply estimates falling say banks, UN
by Reuters News on 02 September 2008, 18:12 PM 0 comments , 772 views Categories: Reuters News
By Michael Szabo
LONDON, Sept 2 (Reuters) - Supply forecasts for project-based carbon emission offsets, which can be used by heavy industry to meet greenhouse gas targets, are falling according industry analysts.
Around 1.7 billion tonnes of the UN-issued offset credits (CERs) will be issued by 2012 to companies participating in the global carbon market, investment bank Merrill Lynch said in a report published on Tuesday.
France's Societe Generale also revised its supply forecast to 1.7 billion CERs, down from an estimate of 1.9 billion made in July, analyst Emmanuel Fages told Reuters.
The United Nations Environment Programme Risoe Centre (UNEP) said the supply figure would be around 1.478 billion tonnes due to "slightly fewer new projects (being registered) per month". Last month UNEP told Reuters it estimated 1.674 billion CERs would be issued by 2012, but that figure has since been updated to 1.509 billion.
And Deutsche Bank's Mark C. Lewis trimmed his expectations for CERs available to the European Union's Emissions Trading Scheme (EU ETS) for compliance to only 750 million tonnes.
Demand estimates from most analysts top 2 billion tonnes through 2012.
"There is substantial downside risk to Kyoto CER supply," Merrill Lynch said, citing a slow down in project registrations, tighter regulatory standards and uncertainty in future demand as reasons for a reduction in supply during the next five years.
Lower supply means companies participating in the EU ETS wanting to use CERs for compliance will have to snap up what is available in the market, though CERs are currently trading near 6-week highs . CERs for December-delivery closed at 20.50 euros ($29.72) a tonne on Tuesday, according to the Reuters CER Index.
Buyers can also scramble to contract and register new projects with the UN, a process which currently takes at least 18 months according to observers.
But with most credits from the largest and easiest projects already contracted, the so-called "low-hanging fruit", speculators are having to scour for the smaller, more technology-dependent projects.
"The CER issuance success rate will likely decline as the portfolio of projects moves away from large simple industrial projects towards smaller renewable energy or energy efficiency projects," Merrill Lynch said.
The average project size fell for the fourth straight month in August. Projects currently being registered are expected to generate an average of 33,000 CERs, 73 percent less than projects registered in May and 89 percent below projects registered August 2007.
The UN's climate change secretariat has issued almost 184 million CERs to date.