The fears around Hungary ‘recycling‘ UN-approved carbon offsets on Friday appeared to have had a limited effect on carbon markets – at least, so far.
It did push down prices for European carbon allowances (EUAs) at the end of the week, though they began to recover on Monday.
But the more lasting effect could be the widening spread between the offset credits (CERs) and the EUAs for which they are exchangable.
While prices for both allowances (EUAs) and offset credits (CERs) for 2010 rose yesterday, the spread between the two put the allowances at around €1.55 – €1.70 higher – the widest in more than five weeks, Carbondesk notes.
Emmanual Fages at Societe Generale points out there was another likely reason for that widening spread:
One should not forget though that the prices, and in particular the CER-EUA spread, had started to move down before the announcement on Friday, which might have been due to an actual hedge of a sizeable CER delivery by a market operator, who first sold EUA to avoid CER liquidity issues, then progressively sold the CER-EUA swap to move to actual secondary CER.
Still, he believes the Hungary story was certainly part of the move. The re-used CERs cannot be counted again under the EU ETS system, and CERs that have already been surrendered are listed by the EU. But to guard against ‘used’ credits being unwittingly bought and sold, should more Hungary-style deals eventuate, the ECX and Bluenext exchanges plan to flag them to traders.
The question is whether that is enough to allay the fears of re-sold CERs that Friday’s deal sparked – and whether that will continue to widen the spread between CERs and EUAs. Fages points to reports that an anonymous Hungarian official claimed five other countries were interested in buying used CERs, but adds:
Our view is that the risk will lead to a structural widening of the spread as some compliant operators might refrain from buying CER as long as the issue is not clarified and the transaction risk eliminated. However, as long as no further deal is announced and if the first 2 Mt are adequately tracked from Japanese registries (if Japan is confirmed as the final buyer), this widening will be limited.
So a lot will depend on whether there really is interest from other countries – and whether the moves to highlight used CERs more clearly will provide enough reassurance for traders wishing to avoid buying them.
Related links:
The latest carbon offset problems: Recycled CERs and Chinese wind (FT Energy Source)
