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Trading Carbon : November 2011
Industrialised and developing countries continue to argue over the future of the Clean Development Mechanism (CDM). The most recent UN meeting in Panama did nothing but shift responsibility to the high-level talks in Durban, South Africa in November and December. But, with prices for Certified Emissions Reductions (CERs -- CDM carbon credits) at record lows, the market may well be giving a clearer signal of the CDM's immediate future than the negotiators. CER prices had slipped below ¤7 a tonne of carbon dioxide equivalent, as Trading Carbon went to press in mid- October. The CER market has seen record issuance this year, and, coupled with global economic problems reducing output and emissions from potential compliance buyers, demand is slipping away. A record 254 million CERs have been awarded so far this year, compared with 132 million in the whole of 2010 and 123 million in 2009. The problem is further exacerbated by the ban on CERs coming from some industrial gas projects -- which account for half the total 753 million CERs issued -- from May 2013 in the EU Emissions Trading Scheme. There is no reason for traders to hang on to these credits. But this is not just a question of the future of CDM. Durban is also scheduled to discuss new market mechanisms for the post-2012 era, although these talks could well be postponed another year. Part of that discussion is going to include schemes that will create carbon credits -- for example, Japan's proposal for a bilateral crediting offset mechanism (see pages 12--15). There are also likely to be talks in South Africa on measures to reduce emissions from deforestation and forest degradation (REDD). A REDD market is almost certainly envisioned by most participants as creating some form of credit in the future, in the same way CERs are developed in the CDM. This all potentially points to a steady supply of carbon credits. The key word there is "potential". There is plenty of work being done out there on this potential, but what about the other side of that equation? Where is the effort to create the demand? Quite clearly without demand there will be no market, be it CDM or anything else for that matter. In a financial climate where money is as tight as it's ever been, it seems most government negotiators still believe that the private sector is happy to wait around while a new climate change regime is agreed. After more than eight years covering carbon markets and climate change negotiations, I'm still not sure if those bureaucrats really understand how markets are meant to work. In the meantime, let's hope that those that do -- be they in Australia, Europe, California, China, Latin America or South Korea -- can provide us with the incentives that are needed to move markets forward. l Managing editor Andrew Allan Editor Robin Lancaster Deputy editor Susanna Twidale Commercial manager Michelle Thorby Art editor Matt Hadfeld Contributors Andrew Allan, John McGarrity and Valerie Volcovici Editorial enquiries T +44 (0)1943 605279 T +44 (0)20 7017 2884 Sales Michelle Thorby email@example.com T +44 (0)20 7017 2875 Trading Carbon Thomson Reuters Point Carbon Second Floor 102--108 Clerkenwell Road London, EC1M 5SA United Kingdom T +44 (0)20 7017 2875 F +44 (0)20 7253 7856 Cover illustration David Lyttleton A Thomson Reuters Point Carbon publication copyright © 2011 All rights reserved. No portion of this publication may be photocopied, reproduced, scanned into an electronic retrieval system, copied to a database, retransmitted, forwarded or otherwise redistributed without prior written authorisation from Thomson Reuters Point Carbon. Breach of these terms is illegal and punishable by fnes of up to €50,000 per violation. See Thomson Reuters Point Carbon's "Terms and Conditions" at www.pointcarbon.com. ISSN 1756-1655 Trading Carbon is printed on recycled paper editorial Robin Lancaster, Editor firstname.lastname@example.org 01 COMMENT November 2011
December - January 2011