(Updates with ERU price starting in sixth paragraph.)
Sept. 16 (Bloomberg) -- European Union factories and power stations will be able to exchange United Nations carbon offsets for EU permits from February next year, even as the EU delayed a decision on the eligibility of some offsets.
The European Commission put back a verdict on how and when ineligible offsets from projects in developed countries will be set apart from eligible ones, the bloc’s regulator said today. It’s continuing to seek information on the validity of the projects supplying the credits, according to its website.
Today’s announcement means that holders of Emission Reduction Units currently deemed ineligible will have until at least Nov. 15 to prove that the credits are eligible, according to Richard Chatterton, an analyst at Bloomberg New Energy Finance in London. About 31% of the 424 million ERUs that haven’t been surrendered for compliance in the EU’s emissions trading system are marked down as pending/ineligible, or under review by the commission, according to New Energy Finance.
The delay may boost prices for the December contract on ICE Futures Europe “as it’s unlikely anyone would sell ERUs for that month unless they’re certain of their eligibility,” Chatterton said by phone. “Despite the delay, we maintain that the vast majority of those Track 1 credits marked as pending/ineligible are actually eligible.”
Under the bloc’s rules, ERUs and Certified Emission Reductions from developing countries must be exchanged for EU permits before they can be used to meet caps on discharges in the 28-nation market, the world’s largest, from 2013 through 2020.
ERUs for delivery in December were unchanged at 36 euro cents ($0.48) a metric ton on London’s ICE Futures Europe exchange. The contract for 2014 delivery had not traded as of 5 p.m. It closed at 35 cents on Sept. 13.
The difference between the December 2013 and December 2014 contracts, traded as a separate contract on ICE Futures, has swung from contango, where near-dated contracts are cheaper than those with longer maturities, to backwardation, where the near- term contract is more expensive. The spread contract changed hands at parity on Sept. 11, the last time it was traded, and was indicating a 1 cent premium for the 2013 contract since then.
The shift in the spread reflects uncertainty about the eligibility of ERUs that may be delivered into December futures contracts, Chatterton said, helping boost this year’s price relative to the 2014 contract.
“Anyone holding ERUs that are not yet confirmed as eligible will be hesitant about selling the December contract in case the commission doesn’t clarify the eligibility of their credits in time,” Chatterton said. “Those ERU sellers then must sell the 2014 contract.”
--Editors: Andrew Reierson, Mathew Carr