As you may know, the 17th Conference of the Parties of the UNFCCC and 7th meeting of the Parties of the Kyoto Protocol ended in the wee hours of Saturday morning (10/12/2011) in Durban, South Africa, bringing some clarity to the future of the carbon markets that we would like to share with you.|
First, the good news: There will be a second commitment period for Annex 1 Parties of the Kyoto Protocol post 2012, which basically means that there will still be a market for CERs at least until 2020. This is an interim solution which will be replaced by a new legal framework, with reduction targets for all emitters, to be agreed upon no later than 2015 and implemented no later than 2020. Exactly what this framework will look like is by its nature not yet decided ; the new treaty mandates to start negotiating from 2012 to finalise the new framework.
Europe will continue to be the main market for CERs moving towards 2020, though Australia will be open for limited purchase of CERs from 2015.
So, what does this mean for the future CER price? As the indicators stand now, the price prospects are not as gloomy as the current spot price would indicate. With the introduction of Phase III of the EU Emission Trading Scheme (EU ETS), which will ban industrial gas projects which have generated roughly two thirds of the issued CERs to date, along with the continued legally binding targets, should (all else being equal) help drive prices higher . This is supported by an analysis from Point Carbon from September this year, suggesting that Phase III compliant CERs (also known as “green” CERs) should rise in price to the 13-18 €/t level. All in all there is good reason for optimism for the future of CDM. For further reading, please see the official summary of the outcomes from Durban, here: