Sceptre Group – Early 2013 deadline threatens 100m CERs

The Sceptre Group blog reports on the latest industry news.  For more information, visit Sceptre Group’s website at www.sceptreinternational.com.

The number of CERs companies can use to meet phase two caps could be slashed under new EU rules.

If the EU opts to ban companies from using industrial gas CERs from 1 January 2013, as opposed to the 2012 compliance deadline of 30 April 2013, the number of credits eligible for use under phase two of its emissions trading scheme (EU ETS) could fall by some 10 per cent.

“With the current delays in issuance, more than 100 million CERs from industrial gas projects will be ineligible in the EU ETS if the deadline for use is moved up to 31 December 2012,” said Frank Melum, an analyst at Point Carbon.

The European commission is soon expected to propose limits on the number of CERs that companies can use from HFC 23 and N2O-destruction facilities under the clean development mechanism to meet EU caps.

Among proposals being debated are a total ban on the credits, which account for 72 per cent of all CERs issued so far, partial limits, as well as applying a discount factor to using the credits.

Most analysts estimate that around 1 billion CERs could be eligible for companies to use to meet their phase two 2008-2012 targets, providing they have until the end of April 2013 to surrender credits.

But the bloc has yet to decide whether to enforce the limits from January 2013 or from May 2013.

The later deadline would allow companies covered by the EU ETS to use credits issued in the first four months of 2013 to cover their 2012 emissions.

Delays

Melum said the 12-month delay from the time it takes to get CO2 reductions verified to the point of issuance means a significant number of credits will not be generated before a January deadline.

He said this number could be slashed to 40 million if the issuance process is expedited or the UN secretariat hires more staff.
Analysts at French bank Societe Generale estimated a similar number of CERs could be affected by an earlier deadline.

“Our estimation is 40-60 million HFC and N2O CERs, with CO2 reduction realised before December 2012, will be issued in Q1 2013,” said Emmanuel Fages.

“This is because requests for issuances from projects ineligible in phase three will accelerate towards the end of phase two, from summer 2012 onwards,” he said, adding weekly CER issuance levels could rise to 3-4 million, up from around 2 million a week so far this year.

Deutsche Bank carbon analyst Isabelle Curien put the number of CERs at risk at around 40-50 million, based on the current rate of issuance, while Barclays Capital’s Trevor Sikorski was slightly more conservative.

“At historical levels of issuance, the loss of four months would equate to between 30-35 million tonnes of HFC-23 and adipic acid (N2O) credits,” he told Point Carbon News.

Carbon lobby group Carbon Markets & Investors Association on Monday pushed for any restrictions on phase three CER use to start in May 2013.

Meanwhile, some spooked traders started selling March 2013 CERs in mid-October, in anticipation that the deadline for using credits from industrial gases could be brought forward to January.

This steepened the already backwardated futures curve and drove the March 2013 CER price 70 cents below the December 2012 price.

The spread has since eased to 42 cents, still exponentially above the six-cent spread between the comparable March 2012-December 2011 contracts on the European Climate Exchange.

The commission said it would publish its proposal ahead of UN climate talks, which start in Cancun on 29 November.

Source: www.pointcarbon.com

Sceptre Group Limited is a specialist investment firm focused in low carbon financial investments such as sustainable biofuel plantations, agricultural farmland and green technologies.  For more information on Biofuel Investments, please visit Sceptre Group’s website at www.sceptreinternational.com.

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