UN carbon offsets hit record low amidst fears over "grey" credits

The price of UN-backed carbon offsets hit a record low of €3.32 a tonne this morning, as fears over the eurozone crisis and on-going concerns about the long-term validity of some certified emission reduction (CER) credits prompted a sell off. Prices fell by over six per cent before rallying slightly to over €3.60.

Speaking to BusinessGreen, Tom Greenwood, senior analyst at IDEAcarbon, said that the fall in prices had been driven by concerns over the health of the eurozone following a series of downgrades by credit agencies late on Friday.

However, he added that the widening gap between the price of CERs and the price of the EU emissions allowances (EUAs) traded in the bloc’s emissions trading scheme (ETS), which were trading at €6.75 this lunchtime, suggested low demand for CERs was also being driven by concerns about the EU’s impending ban on offset credits issued by industrial gas projects.

The EU is planning to ban all CERs issued from HFC 23 emission reduction projects from March 2013 in response to suspicions that some projects designed to reduce industrial gas emissions have been “gaming the system” and generating excessive revenue from the sale of credits.

Greenwood said that concerns are mounting that the CER market is increasingly dominated by so-called “grey CERs” issued by industrial gas projects that will be banned from the EU ETS next year. Meanwhile, the majority of “green CERs”, issued by UN-approved renewable energy projects, are thought to have been sold using direct contracts or held back by developers keen to see the price of offset credits rise before they sell.

“Up to March 2013 we are likely to see all CERs treated as if they are ‘grey CERs’, as we think that the ‘green CERs’ are not making it to the secondary market,” explained Greenwood. “The market is oversupplied so demand is driven by people banking credits for the next phase of the EU ETS, but you can’t bank ‘grey CERS’… For CERs, I don’t see the price picking up much until after March 2013.

You can return to the main Market News page, or press the Back button on your browser.