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The Truth About Durban: EU Carbon Price Plunges To Record Low

EU carbon prices fell to their lowest ever level on Wednesday as the euro currency and equities slid on renewed fears over the bloc’s debt crisis and oil prices tanked after producers promised to maintain high output. “It’s clear that Durban didn’t help, and Canada’s announcement of its Kyoto Protocol withdrawal tells you what little countries think about international agreements.”

The ICE ECX December 2011 EUA contract fell 73 cents to an all-time low of 6.30 euros, down 10.4 percent on Tuesday’s 7.03-euro settlement.

By 16.30 GMT, the contract had recovered slightly to 6.41 euros on healthy turnover of around 15 million units.

The drop sends the contract into unchartered territory, falling well below its previous low of 6.77 euros on December 6 as market traders saw few signs of respite in the EU economy to boost demand for emission permits.

“I still don’t see any bottom to this market,” said one carbon trader, who said any positive sentiment from this weekend’s landmark U.N. climate summit in Durban was purely psychological as it brought no increase in demand for permits.

“It’s clear that Durban didn’t help, and Canada’s announcement of its Kyoto Protocol withdrawal tells you what little countries think about international agreements,” he added.

On Tuesday, Canada confirmed it was withdrawing from the 1997 Kyoto Protocol, still the only global agreement to tackle climate change.

Wednesday’s fall in EUAs extended the previous session’s 6.6-percent slide and came as the euro currency broke below $1.30 for the first time since January after the U.S. Federal Reserve warned Europe’s unresolved debt crisis could hurt the giant American economy.

Bond markets appeared to take little confidence from last week’s agreement by EU leaders to strengthen the bloc’s fiscal discipline as Italy sold debt at record euro-era borrowing high of 6.47 percent.

Carbon also faced pressure from the energy complex, which was led downwards by a $3 fall in front-month Brent crude oil prices to $106.15/bbl after the OPEC producer cartel vowed to keep high output levels for six months without outlining steps to cut production should demand wane.

Meanwhile, the December 2011 CER contract trading on ICE Futures Europe fell a further 13 percent on Wednesday to a new low of 3.80 euros as the market absorbed 1.1 million ERU credits issued late last night from Russia.

Front-year CERs had already plumbed new depths on Tuesday, dropping almost 10 percent on expectation that the market would continue to face a deluge of supply.

Reuters, 14 December 2011


Carbon credit market sags even after Durban climate talks

Rajesh Bhayani & Piyali Mandal

To the surprise of the carbon trading market, prices of carbon emission reduction (CER) certificates traded on the Intercontinental Exchange have been sliding even after last week’s global deal on future emission reduction.

CER prices closed at a then all-time low on Friday, when the Durban talks were leading to uncertainty on a deal. Yet, after the weekend agreement, CER prices in the past three sessions have fallen nearly 22.8 per cent, over and above the 37.2 per cent fall in the past three months till last Friday.

Last Friday, CER prices closed at 5.3. It opened slightly higher on Monday but prices have been falling since and reached a further low of 4.1 on Wednesday in the opening session.

According to Indian companies, the prices may be faltering due to lack of commitment from big nations. The day after the climate change talks closed, Canada said it would not be part of the second commitment period of the Kyoto Protocol. With Russia, Canada and Japan out of the picture, and the US never ratifying the KP, companies here are worried over the fate of the credit points they already own. “Even after the extension of KP, there is uncertainty in the market. With countries pulling out of Kyoto, the demand for CERs are bound to come down,” said an official with one of the credit generators.

Prices were falling till recently because there was no certainty that the KP would have a future beyond 2012. Another reason was the economic crisis in Europe, the major market for CERs, mostly generated by Chinese and Indian companies. When the market opened on Monday, after the deal at Durban, speculators were expected to enter and pull prices up but that has not happened. Market analysts are saying the actual demand will come from European carbon emitting companies but would take time.