Analysis: When will the EU ETS cap on Kyoto offsets be reached?
As the EU Emissions Trading System (ETS) approaches its third phase, a quota on the number of Kyoto Protocol-linked offset credits that can enter the ETS is slowly but surely being filled.
A survey of analysts' projections by ICIS Heren has shown that estimates vary wildly on the date when no more Kyoto offsets can enter the EU ETS, with dates from 2014 to 2017 proposed.
After the EU ETS reaches its quota of around 1.6bn-1.8bn offsets, holders of certified emissions reductions (CERs) and emission reduction units (ERUs) will have to look elsewhere for buyers.
The major alternatives to the EU ETS appear likely to be the new cap-and-trade systems in Australia and New Zealand, and some buying by European countries to meet their emissions targets for 2013-2020.
But these alternatives are unlikely to provide anywhere near the same level of demand for Kyoto credits as the EU ETS.
Under the terms of the EU ETS, there are quantitative restrictions on the number of certified emissions reductions (CERs) and emission reduction units (ERUs) that can be absorbed into the ETS over the course of its second and third phases, the period from 2008-2020.
With 1.15bn CERs due to be issued by the end of 2012, according to UNEP Risoe data, and most of these likely to be absorbed by the EU ETS, it looks like the quota could soon be filled.
CDC Climat has predicted that the total amount of CERs and ERUs that can be used within the EU ETS is likely to be 1.6bn, and this number will be reached by the second half of 2013.
"The EU ETS is likely to relinquish its role as the driver for the Kyoto credit market by 2014 or 2015," CDC Climat analysts said in a paper published last month.
"In fact, the markets seem to have taken this expectation on board: the price difference between EUAs and CERs has tripled since spring 2010 and the very slight price difference - a few euro cents - between CERs for December 2013 delivery that are eligible for the EU ETS and CERs that are not eligible... reflects the low importance placed on EU ETS eligibility at that date by the markets," the paper continued.
CDC Climat estimates buying by EU countries at 400m-800m between 2013 and 2020, while Australia and New Zealand will also buy "a few hundred million".
Barclays Capital expects 900m-950m Kyoto credits to have been used in the EU ETS by the end of this year, leaving around 700m-750m left to fill a projected quota of 1.7bn, an analyst said.
Assuming 200m will be used each year, the quota will be reached in 2016 or 2017, according to Barclays' estimates.
"After 2017, the focus will shift to Australia," the analyst said.
Deutsche Bank estimates that EU member states will buy 325m Kyoto credits up to the end of 2012, while Japan will buy another 100m and other countries such as Norway and Switzerland will buy around 40m.
That means that of the 1.2bn Kyoto offsets to be issued by the end of 2012, 810m will have been absorbed into the EU ETS, according to Deutsche Bank's estimates.
The bank has not projected a date when the quota will be filled, an analyst said.
Tschach Solutions expects Australia to buy 60m-70m Kyoto credits per year starting in 2013, Ingo Tschach said.
"A significant share of the future issuances of CERs is already sold to compliance buyers as project developers had hedged themselves in the past. These volumes will thus not be available for sale in the future anymore," Tschach said. VF
Other Related Stories
24 May 2012 21:02
|
EDEM,ESGM
24 May 2012 21:02
|
EDEM,ESGM
