New record expected for the use of carbon credits for 2011 compliance
252 million CERs and ERUs likely to be surrendered this year
Oslo (6 March 2012)
The number of EU carbon credits (Certified Emissions Reductions and Emission Reduction Units) that will be handed in for 2011 compliance this year could be as high as 252 million, 84% more than were used for compliance last year, according to analysis by Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.
On 30 April each year EU ETS entities have to surrender the necessary amount of allowances and credits in order to cover their actual emissions. Part of this compliance task is to make a decision on how many CERs and ERUs to use. According to Marcus Ferdinand, Senior Carbon Analyst at Thomson Reuters Point Carbon and author of the analysis, “we predict that there will be 456 million credits available to EU ETS installations in April 2012, of which we expect some 252 million credits will be handed in for 2011 compliance. This is significantly up from the 137 million used for 2010 compliance and around 82 million for 2009 and 2008 compliance”.
Ferdinand points to several factors which, combined, account for the predicted increase in credit use. “The reasons why we expect significantly higher use of credits this year are mainly the higher issuance of both CERs and ERUs in 2011, the attractive EUA-CER/ERU swap-spread as well as the need to use industrial gas credits before the end of phase 2”, said Ferdinand.
Market participants used only 35% of their annual average credit limit allowed over the first three years (2008-2010) of phase 2 of the EU’s Emissions Trading Scheme (ETS). Theoretically, this would leave around 830 million credits available for compliance in 2011. “However, we believe that market participants won’t use this full available amount, due to risk diversification strategies as participants want to keep the unused credit limit for phase 3”, Ferdinand said.
Another significant contributory factor to the predicted increase in credit use is that, from 2013, credits from industrial gas projects will no longer be eligible for trading within the EU ETS. “This means that any credits from these project types on EU ETS operators’ accounts will have to be used for compliance in phase 2 as they will lose any value within the EU ETS thereafter”, explained Ferdinand.
“Even if the market does use a record amount of credits for compliance this year, this does not mean that the market is shifting its focus. Rather, it is due to the significant increase in issuance last year and the acceptance that the end of phase 2 marks an end of compliance with industrial gas credits. Therefore, it is not a rush for credits but a reflection of higher supply and market infrastructure”, Ferdinand concluded.
Thomson Reuters Point Carbon’s 2011 predictions for credit usage this year would mean that over the whole of phase 2 approximately 800 to 900 million credits will have been used for compliance, leaving between 850 and 950 million credits for usage in phase 3 if current targets remain the same.
Note to editors
- The Kyoto Protocol to the UN Framework Convention on Climate Change entered into force in February 2005. The Kyoto Protocol motivated the launch of The EU Emissions Trading Scheme (ETS). The world’s first international emissions trading scheme, the EU ETS works on a cap-and-trade basis, where the total volume of permitted emissions (the “cap”) is set at the start of a trading period. EU Allowances (EUAs) are the tradable units under the EU ETS, each representing a permit to emit one metric tonne of carbon dioxide equivalent (CO2e). Up to a certain limit, companies regulated by the EU ETS are also allowed to use carbon credits from third countries (CERs and ERUs) instead of EUAs.
- Certified Emissions Reductions (CERs) are project credits generated from emission reduction projects in developing countries.
- Emission Reduction Units (ERUs) are project credits generated from emission reduction projects in industrialised countries.
- The second phase of the EU ETS runs from 2008-12 and coincides with the Kyoto Protocol commitment period. The third phase will run from 2013-20.
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