Prices for the leading UN carbon credits, Certified Emissions Reductions (CERs), continued their 2009 recovery during August, but analysts doubt the current level of prices can be maintained. In secondary market trading of issued CERs, the benchmark Dec 09 futures contract closed at €13.40 on the European Climate Exchange on August 27. The Reuters index strip price for delivery across 2009-12 was at €13.30.

The recovery in CER prices in recent months has surprised a number of analysts and prompted predictions that there may be a correction before the end of 2009. Prices hit record lows in February, 70 per cent below their July 2008 peak of nearly €24, as the global economic downturn fully reflected in carbon markets. Since then prices have steadily recovered, tracking EU carbon allowance (EUA) prices upward, to be 45 per cent down on that peak.

The primary market for yet-to-be issued CERs has in turn followed the upward swing of the secondary market. pCERs have seen some price recovery in recent months, particularly for future CERs with low delivery risk.

Carbon analysts IDEAcarbon report low-risk pCERs trading just over €11 in mid-August, 37 per cent higher than their February lows. There remains a very close correlation between these CERs at the upper end of the primary market, and secondary market CERs, Reuters reports IDEAcarbon director Alessandro Vitelli saying.

The recovery in CERs has been exaggerated by the unwinding of hedge positions in the secondary market, according to Anders Porsborg-Smith from Danish carbon and energy broker Nordjysk Elhandel. He says traders have been buying back Dec 09 CERs this year at the lower prices after their hedging strategies had seen them sell at much higher prices in late 2008 as recession set in. This has delivered them handy profits averaging €6.50 per CER.

But once these traders complete their re-entry to the market, there may well not be the demand to maintain prices at the €13-14 level. Trevor Sikorski at Barclays Capital believes ongoing economic weakness means low emissions and low demand for EUA emission permits, in turn driving down demand for CER offset credits. He forecasts an average CER price of €10 over the last half of 2009.

Also working to boost prices has been the tighter supply side of the market, with project developers holding back the verification and issuance of CERs this year in the hope of gleaning higher prices next year. IDEAcarbon estimates are for 116 million new CERs to be issued this year, a 16 per cent drop on the 138m issued in 2008.

But Vitelli agrees that low recessionary demand for carbon permits is likely to have the bigger impact on CER prices in coming months. He told Bloomberg EUA prices might themselves fall as low €10, implying CER prices as low or lower.


Reuters 24/8/09, Bloomberg 26/8/09