EU Carbon Drops Most in a Week as Offset Swap Misses Estimates

May 02, 2014 12:14 pm ET

May 2 (Bloomberg) -- European Union carbon permits fell the most in a week as data showed emitters exchanged fewer United Nations offsets than estimated for the EU contracts, signaling lower future demand.

Emitters swapped 133 million metric tons of Certified Emission Reductions and Emission Reduction Units through the end of April under a system begun about March 18, the European Commission said today in a statement on its website. That was less than half of the 300 million tons projected by Bloomberg New Energy Finance.

Factories, power stations and airlines in the EU carbon market, the world’s biggest by traded volume, can use cheaper offset credits for part of their compliance needs. The slower pace of offset use means more of the contracts will be available for use in later years, trimming demand for EU permits, said London-based analyst Richard Chatterton at New Energy.

“The delay in implementing the exchange process led to less credit-EU allowance exchanges by end-April than we had expected,” he said today by e-mail.

The UN 1997 Kyoto Protocol supports the development of carbon-cutting projects by awarding investors ERUs or CERs that can be sold to companies and governments with pollution caps. One credit equates to a one-ton reduction of carbon dioxide.

December EU carbon permits dropped 4.4 percent to 5.22 euros ($7.23) a ton at 4:59 p.m. on ICE Futures Europe in London. The contract earlier slumped as much as 6 percent, the most since April 25. December CERs were unchanged at 15 euro cents a ton, while no ERUs were traded.

The program’s rules curb offset use in the 13 years through 2020 to about 1.59 billion tons, 25 percent of which remains unused after today’s announcement, according to New Energy data.

“We expect the pre-March 2015 CER and ERU futures contracts to fall close to zero during this year, as the available supply of offsets is greater than remaining EU emissions-trading-system demand,” Chatterton said.

May CERs rose 7.1 percent to 15 euro cents, with a record 20,000 tons bought and sold on ICE.