Weak offset credit swaps figures weigh on carbon

02 May 2014 17:28 Source:ICIS

European Commission figures out Friday showed fewer international offset credits were exchanged for EU allowances (EUAs) up to the end of April than was expected, which applied bearish pressure on Friday because people might exchange more offsets later in phase III.

Under EU emissions trading system (ETS) rules operators need to swap international credits, such as certified emission reductions (CERs) and emission reduction units (ERUs) - for EUAs, if they wish to use them in phase III of the ETS.

The commission said 133m international offsets were exchanged for EUAs. This surprised traders who were expecting around 200m-300m offsets to be swapped.

Market participants were keen to gain visibility on how many international offsets have been exchanged as this will give an indication of how many are entering an already oversupplied ETS.

A total of 66.4m CERs and 66.4m ERUs were exchanged for EUAs.

Compliance players are more likely to use offset credits as they are much cheaper than EUAs. On Thursday, the benchmark CER contract was just €0.15/tCO2e at the close, compared to €5.46/tCO2e for its EUA equivalent.

Operators are entitled to use 542m to 642m international credits in phase III of the ETS.

It is no longer possible to trace how many CERs and ERUs were used in a particular compliance year, as they are now swapped for EUAs.

However, assuming the 133m offsets which were swapped for EUAs were surrendered, then a large chunk of the phase III offset quota could have been used up.

Up to 2012, 1.058bn offsets had been surrendered in the EU ETS, according to figures from the commission.

EUAs surrendered

Meanwhile, the commission also released data on the number of EUAs – 1.91bn – surrendered for compliance purposes in 2013, even though actual verified emissions for the year were a touch less, at 1.9bn.

Some installations that have open ETS accounts have yet to report their verified emissions, so the figure could rise.

In 2012, verified emissions totalled 1.93bn.

On 15 May, the commission will provide final data whether operators surrendered the required amount of allowances to cover their emissions in 2013. Ben Lee

By Ben Lee