The carbon market has seen healthy gains in recent weeks. The price of EU allowances has risen above €15 and the spread between EUAs and certified emission reductions has remained steady. Analysts have downgraded their estimates of expected CER issuance through 2012 due to financing difficulties for projects and uncertainties beyond the second phase of the EU emissions trading scheme. Hydro, wind, and biomass projects are expected to generate the most CERs through 2012 based on projects that have reached the comment period in 2009. Japan's new prime minister supports an ambitious 25% emissions cut target by 2020 despite industry concerns. Ireland is also expected to introduce a €20 per tonne carbon tax.

1. CF PARTNERS CARBON MARKET SNAPSHOT 07-SEPTEMBER-09
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MARKET PERSPECTIVE
The back end of August and first week of September have represented healthy gains in the carbon market. Currently the Dec 09 CER is trading at close to €13.51 whilst the EUA is trading at over €15.30. The EUA-CER spread has remained locked in
the €1.60-€2.00 range for the last few weeks. The EUA 09-12 forward curve has reflected the overall upward trend in the market moving up to €1.85. Despite the positive signs shown by the EUA, the CER forward curve remains hampered by a lack
of a liquidity and the ‘12 CER is currently trading at a €0.11 premium to the ’09 whilst the rest of the curve remains in backwardation.
The primary market continues to be a topic of debate. UNEP Risoe made headlines in last week by once again downgrading their estimates of CER issuance from the current pipeline through to 2012. Their current assumptions forecast that the
CDM will yield a total of 1.243 billion CERs by the end of EU ETS phase II. Reasons for the reduced CER production include, increasing finance pressures in project developers, the current slowdown in terms of UN issuance and registration rates, and
post 2012 uncertainties hampering additional investment in CDM. All of these areas are reflected in the current primary market where we’re seeing a lot of early stage projects and portfolios, many of which either require CDM or project costs to
be covered. To the extent that Buyers can cover some of these upfront costs, it can result in significantly cheaper CERs over the lifetime of the project assuming decent delivery rates. The demand for primary credits remains stable, with many
Buyers still waiting for payment on delivery structures rather than entering into the upfront payment options available. Asides from CDM we continue to see a healthy flow of ERUs from Eastern Europe, assuming due diligence criteria are met
these typically price at a parallel to similar stage CERs. Increasingly we’re seeing that counterparty quality is becoming an important concern for most compliance buyers in the primary market who are willing to pay a premium to market price in
order to transact with investment grade Sellers. The market for post 2012 credits continues to grow, with most Buyers now able to offer both fixed and floating structures. It continues to be difficult to realise even small upfront payments against
CERs delivered beyond EU ETS phase II.
80,000 250
CF PRICING PORTAL MARKET DATA
Source: European Climate Exchange, Bloomberg, UNEP RISOE
70,000
CF Partners Market Pricing The graph to the right shows the composition of the CDM pipeline
200
Expected 2012 CER issuance Kt CERs
CER Market € according to projects that have reached the period for public comment 60,000
Post PIN, Pre PDD, HC in 2009 only(c. 850 projects). Clearly, the make up of the CDM pipeline
8-9.5
Number of Projects
Approval has changed significantly relative to the overall pipeline since CDM first 50,000
began (c. 5000 projects). HFC and N2O represent only a small volume of 150
At validation. 9-11
the expected 2012 CER generation. Instead the major contributors to 40,000
Registered & Non- expected CER generation are hydro, wind power and biomass, along with
10.50-12.25
Guaranteed the various Energy Efficiency methodologies. Geothermal, Coal Mine 100
30,000
Guaranteed 12.5-13.75 Methane and Energy Supply Side methodologies appear from a high level
Post 2012 55-70% sCER* perspective to be the methodologies capable of yielding the most CERs 20,000
from individual projects. 50
Exchange Prices €
10,000
Dec 09 CER 13.51 Interestingly, the largest sector in terms of expected delivery in recent
DEC 09 EUA 15.33 times has been hydro. The hydro projects that have been added since the - 0
DEC 12 EUA 17.34 start of the year are expected to produce up to 73 million CERs. Of these
EUA-CER Spread 1.82 76% or 59.5 million CERs are from hydro projects with a power rating in
excess of 20MW. The large expected volumes of CERs from these hydro
Source: ECX and CF Partners
projects further promotes the argument that at some point these CERS
* Subject to documentation and language must become exchange tradeable.
NEWS
Japan PM-elect back 25% greenhouse gas cut - Japan's prime minister-elect said on Monday he will forge ahead with a tough 25 percent cut in emissions by 2020, despite growing opposition from industry which says the target will hurt
the world's No. 2 economy. But Yukio Hatoyama added that the target, more ambitious than the outgoing government's, was premised on a deal including ambitious goals being agreed by major nations
Ireland looks likely to introduce a carbon tax of €20 per tonne - Ireland's Commission on Taxation recommended a levy on fossil fuels that would vary depending on the price of allowances in Europe's emissions trading scheme, but the
levy is expected to raise around €500 million a year. The introduction of the tax would make Ireland one of the first EU countries to introduce a levy on fossil fuel, although power plants and factories in the ETS will be exempt from paying
the charge
EC to propose VAT fraud measures in weeks - The commission will set out a temporary fix to deter VAT fraud in carbon trade across the EU. The bloc’s executive will propose stopgap measures by the end of the month or in early October
which it reckons will provide a “temporary solution”. France, the Netherlands and the UK have all changed the way they apply value-added tax (VAT) on all trade of carbon credits in the past three months
CDM to dominate Australian carbon cuts: analyst - Australia will meet more than half of its carbon reduction target through CDM, an analyst said. Of the roughly 80 million tonnes of CO2 Australian firms must cut in the year 2020, more
than 40 million will be made outside the country’s borders, according to Seb Henbest, an analyst with consultancy New Energy Finance. The Australian carbon bill would allow firms to use an unlimited amount of CERs for domestic
compliance
Slovakia suspends all AAU-trading - Slovakia will suspend the sale of Kyoto emission units, the new environment minister said. Dusan Caplovic told Point Carbon News his country would postpone negotiations to sell assigned amount units
(AAUs) and cancel a previous agreement allowing one US-based company to buy units in the future. The move follows the sale of 15 million AAUs at €5.05 ($7.02) to US-based trader Interblue last year
UN agency cuts CER supply forecast - Unep Risoe today became the second organisation in a week to cut its forecast for CER supply. UNEP Risoe now estimates that 1.243 billion CERs will be issued by the end of 2012, 35 million fewer than
its estimate last month. Last month, 101 new projects were added to UNEPs CDM project pipeline, which now stands at 4,631 after discounting rejections/withdrawals
Barclays stops trading RGGI from US - Low liquidity in the RGGI market has prompted Barclays to stop trading the product from the US
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