China shoots foot; European Commission kills PoA; Panel strangles meth – it’s never boring
by: Gareth Phillips, Managing Director, Sustainability and Forestry
Who would want to be on the supply side of CERs these days? Prices are at an all time low and for sure, some suppliers are going to suffer, but there are a few twists still to be unraveled.
The new regulations from the Chinese NDRC relating to the issuance of post 2012 CERs could turn around to bite Chinese suppliers, and at the same time, could curtail supply and provide a boost to the market. Released in August this year, the new regulations state that CERs post 2012 will not be issued without a new letter of approval. The terms for the issuance of new Chinese LoAs include submission of an ERPA to buy Emission Reductions (not just CERs), to the end of the project lifetime (not just to the end of the crediting period), at a floor price €8 – 9 and, apparently, without any get out clauses. Who would sign an ERPA under these terms today? Could this precipitate a significant drop in the Chinese supply of CERs post 2012?
The European Commission published a set of FAQs and highlighted the fact they were monitoring the use of PoAs. Until this publication, in an acronym filled world, CPAs added to pre-2012 registered PoAs in non-LDCs were expected to be eligible to supply CERs into the EU ETS. The fact that the EC is monitoring this “loophole” which does not comply with the spirit of the EU ETS Directive, may be taken as fair warning that access will be curtailed at some time in the future. With such oversupply in the market, the EC has nothing to lose. Who then, today, would continue to invest in a PoA in a non-LDC? This leaves PoA in LDCs as the main source for scaling up the CDM. Good luck with that.
And the EC’s knives are out for large hydro entering the EU ETS as well.
Having approved a methodology which encourages the construction of super-critical and ultra-super-critical coal fired power plants, the CDM EB’s Methodologies Panel have now, twice, recommended that the meth be suspended. This will stop progress on the registration of a long list of new projects planning to claim a total of around 450 million CERs and leaving just six registered projects. The Meth Panel’s recommendation is made on the basis that the meth over-credits the projects and thus the EC will be under even more pressure to exclude CERs from the registered projects from the EU ETS.
These twists, and in particular the EC’s aversion to large hydro and China’s new LoA rules, are likely to materially impact upon the supply of CERs post 2012. It is not immediately obvious how to estimate what proportion of the market might be affected but I wouldn’t be surprised if current projections for CER issuance over the next few years end up being materially overstated.
