MERCHANDISER
IDEACARBON’S LATEST GLOBAL CARBON REPORT showscarbon abatement(suchasfuelswitching)andsavetheCERsforPhaseIII.
pricesatoddswithmarketdrivers.Latestfiguressuggestthatcarbon However, more recent discussions in the European Parliament
iscurrentlyunder-valuedinlightofchangingmarketfundamentals. have now changed that logic. The latest proposals give firms a
July2008sawadramaticfallinthepriceofcarbon.TheDecember muchstrongerincentivetouseuptheirPhaseIIquotasinceunused
2008 price of European Union Allowances (EUAs) – credits allocat- quota may no longer be carried over. Surplus CERs can always be
ed to installations in the EU covered by the EU Emissions Trading swappedforEUAs,however,whichcanthenbebanked.
Scheme–fellby25%fromahighonJuly1
st
of€29.33toalowon The financial merits of this strategy will depend on the cost of
August 4
th
of €21.21. Prices have staged a mild recovery since. The internal abatement. Installations will compare the cost of buying
price of secondary CERs – credits produced by Clean Development CERs or EUAs with the cost of reducing emissions internally, either
Mechanism(CDM)projectsindevelopingcountries–fellbyalmost noworinPhaseIII.
20%overthesameperiod.
However, IDEAcarbon's Global Carbon
Report suggests that, although a correction
CarbonUnder-valued,PhaseI
was necessary, this low price is at odds with
otherfactorsatworkinthemarket,suchassupplyanddemand. EstimatesofETS-internalcompliancecostsin2020varyfromas
First, little has changed in terms of the supply pipeline. In March, low as €15 to about €60 per tonne (measured in today’s prices).
IDEAcarbonestimatedthattheCDMwouldproduce1.6billioncred- This is equivalent to €20-80 per tonne in current value terms,
its(1.6GTCO
2
e)bytheendof2012,withJointImplementation(JI) assuming 2.5% inflation. The upper end of this range is probably
projectsaddingafurther90milliontonnestothesupply. toohigh,however,especiallyifaseriouseffortismadetoincrease
It is unlikely that the entire 1.69 billion credits will be offered to energy efficiency – a likelihood for any business given current
the market during the 2008-2012 period. Investors are likely to energyprices.
bankaportionofthecreditsinordertosellinthepost-2012market Asaresultofthesesupplyanddemandconditions,amid-pointof
iftheyfeelthisoffersbetterprospects. €45pertonneincurrentvaluetermsseemsreasonable.Thisimplies
Secondly, demand dynamics for the EU ETS are changing. The anaveragePhaseIIpriceof€29forEUAsand€24forCERs.
January 2008 climate change package by the European Ifthisiscorrect,thecurrentpriceofcarbonseemswellbelowthe
Commission included an aggregate CDM/JI quota of 1.4 billion long-term trend level. We should expect carbon prices to rally over
tonnes for 2008-2020. For most installations, the best response to themedium-term.
this structure was to achieve Phase II compliance through internal
www.ideacarbon.com
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