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Emissions update

The prices of various different greenhouse gas abatement certificates have fallen in the general economic gloom that pervades the world. Europe is the principal market for these instruments, since implementing the ‘cap and trade’ provisions of the Kyoto protocol with enthusiasm over a decade ago but prices have suffered with the decline in industrial output there. There has also been some confusion about the details of exactly how interchangeable the various kinds of certificate may be which has hit the price of CERs particularly hard – see the first two charts.

Prices of CERs are now under €2, after trading at around €13 for over two years until mid-2011. There have recently been weekly and daily-scale bottom extensions in the December 2012 delivery CER futures contract arguing that this drop has now ended and that a rebound is possible.

This coincides with a weekly-scale compression in EUAs, the ‘senior’ emissions contract in Europe (third chart). This instrument has not suffered as much as CERs in the decline and IF this compression should now break upward, we would advise that you buy eagerly, especially CERs. CERs can probably be bought now, even without an upward EUA break – the ‘cap’ in ‘cap and trade’ is about to ratchet down next year and so emissions should become gradually pricier anyway – the economic gloom in Southern Europe has masked this upcoming event from the market’s view and so this may be a first class opportunity to acquire a potentially valuable asset cheaply.