EU and UN Agree Long-Awaited Carbon Market Link
Date: 31-Aug-07
Country: UK/BELGIUM
Author: Gerard Wynn and Jeff Mason
The statements calmed market doubts about the timing of the
link and sparked sales of EU carbon emissions permits.
The European Union plans the switch on Nov. 17-18, barring
any technical problems, a European Commission official said. The
official said two trial runs on the link would take place before
that weekend.
"If those work out well, then the planning is (for) that
weekend," the official said. "If it doesn't work, then it will
be later."
Under Kyoto, rich countries can meet domestic greenhouse gas
emissions goals by buying carbon offsets, or carbon credits,
from developing nations.
European businesses can meet EU-imposed emissions limits
using either these Kyoto credits or EU carbon emissions permits,
called EU allowances (EUAs). Kyoto credits had traded at a
discount until now because delivery wasn't possible.
That price discount should now narrow. EUAs for 2008
delivery initially fell 60 euro cents, or 3 percent,
on Thursday's news. By mid-afternoon EUAs were trading at 19.25
euros, down 68 cents on Wednesday's close.
"It makes sense, the spread (price difference) between the
two was too large," said Seb Walhain, director of environmental
markets at Fortis Bank. The spread should now narrow further, he
added, offering gains to speculators who sold EUAs.
After the EU-UN market link all carbon credits traded in
the EU carbon market and under Kyoto will trade through one
registry, called the International Transaction Log (ITL).
But in one complication typical of the teething troubles
that the EU's two-and-a-half year old carbon market has
suffered, countries will still have to await additional UN
approval or "eligibility to trade", before they can trade their
Kyoto credits across borders.
That process is seen taking longer than the ITL switch, but
Austria, Japan and Switzerland were already at an advanced
stage, the UN climate body said on Thursday.
"Austria, Japan and Switzerland are just the first reviews
to be finished and we are expecting another 30 or so before the
end of the year," the UN's top climate change official, Yvo de
Boer, said.
DELIVERY IN DECEMBER
The first major Kyoto contracts under the so-called Clean
Development Mechanism (CDM) fall due for delivery in December.
"Having (EU) registries go live on the ITL in November this
year clearly has one eye on the delivery of CDM credits under
future contracts in December," de Boer said.
So far eight registries had received approval to link with
the ITL, and the registries of all the rich countries which face
emissions targets under Kyoto should get approval by mid-October
2007, the UN statement said.
The eight already approved registries were the CDM registry
plus Austria, the Czech Republic, Hungary, Japan, New Zealand,
Switzerland and the United Kingdom.