Masthead graphic based on a painting by Gudrun Thriemer.

Thursday, May 04, 2006

"Carbon Slide Will Not Halt Kyoto Projects - UN," Reuters/Planet Ark, May 4, 2006.

A 65 percent collapse in European carbon prices in the past two weeks has slashed the cost to European industry of buying pollution permits, or carbon credits.

This in turn cuts the cash that clean energy projects in developing countries can expect for carbon credits they sell into the EU market, under a Kyoto Protocol process known as the Clean Development Mechanism (CDM)....

The EU then handed its polluting firms a certain quota of carbon credits. But they can get more by funding pollution cuts in developing countries, under the CDM, at a discount to the European price.

That alternative route -- to buy so-called Certified Emission Reduction units (CERs) -- has flourished in the past year, as a vogue market prospered playing the price difference between Europe and Latin America and elsewhere.

A slew of European countries last week announced lower than expected carbon emissions in 2005, implying a surplus of pollution-permitting carbon credits and prompting the price dive.

Traders say no CER deals have happened since that collapse, which flushed out losers including brokers that guaranteed CERs at prices indexed to the European price, the European Union Allowance (EUA), and project managers that did not get such guarantees.

"(CER) Deals will continue to happen. (But) people who have negotiated deals at higher price levels may want to take a break," said Edwin Aalders, a Manager at the International Emissions Trading Association.

"CDM projects indexed to the EUA are sweating at the moment. (But) Realistically there are very few projects which rely on CER revenues...." [But how long will that last? -jlt]

...Last month CERs traded at up to 22 euros (US$27.80) compared to a European carbon credit price of some 30 euros, but European credits were trading at just 12 euros on Wednesday.

"No-one will pay 20 euros for a CER now when the EUA is at 12 euros," said James Emanuel, Head of Carbon Trading at brokers
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