Allowance-CER spread widens at 'surprising' speed
London, 3 September (Argus) — Five HFC-23 projects were issued 3.6mn certified emission reduction (CER) units last week, which immediately pushed CER prices down and consequently widened the EU emissions trading scheme (ETS) allowance-CER spread, UK bank Barclays said in a research report released today.
An investigation by the CDM executive board into whether HFC-23 projects were applying changes to the greenhouse gas (GHG) accounting rules had halted issuance to these projects since May and raised questions about how much issuance there could be until next year, the bank noted. The EU has placed a ban on the use of credits from HFC-23 and nitrous oxide (N2O) projects in phase 3 of the EU ETS and credits from the projects are no longer eligible from 1 May 2013.
Approximately 80mn t CO2e of HFC-23 offsets could come to market and be used for compliance in the next eight months, the bank said.
“However, some caution must be exercised as issuance has only been to five of (19) projects. Most of the largest projects still have outstanding requests for issuance and with the EB taking a project-by-project view on issuance, it remains hard to make generalisations on future issuance.”
With CER prices under pressure, the December 2012 allowance-CER spread has widened dramatically, the bank emphasised. On 31 August, the spread closed at €5.29/t CO2e.
“The spreads are now trading at historically wide levels, and while we have consistently expected this widening to occur, the speed of that development has been a surprise, particularly since much of it has come without HFC-23 issuance,” the bank said. There may a narrowing in the short term, the bank added, but if HFC-23 issuance picks up to prior levels, there will be pressure to keep that spread wide.
Meanwhile, the allowance market remains relatively strong, with the December 2012 allowance contract trading around €8/t CO2e last week, the bank added. There could be considerable volatility in the market in the coming weeks, with expected news on the timing of the phase 3 early auctions and profiles of the back-ended volumes, Barclays said.
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