CERs crash 8.8 percent, hit record low

UN-backed carbon offsets plunged to an all-time low Tuesday on the back of continued fears of over-supply in the market, albeit in thin trade. By 11:00 GMT, the December 2011 CER contract on ICE Futures Europe was trading at 4.47 euros, a record low for the contract and down 43 cents on Monday’s 4.90-euro close.

Traders said the low EUA prices, combined with continued fears of over-supply in the CER market had pushed prices down, although turnover was relatively thin at just over 600,000 credits.

Meanwhile, the December 2011 EUA contract was down 4.5 percent at 7.20 euros, having hit 7.08 euros in earlier trade, the contracts lowest level since touching 6.95 euros on Dec. 8.

This led to an increase in the premium of EUAs over CERs to 2.73 euros. Almost 12 million CERs have been handed out by the U.N so far in December and a further 23 million could be awarded before the end of the month, U.N data shows.

Analysts at Barclays Capital bank suggested in a note on Monday that progress made towards reaching an international climate deal in Durban last week would lead the EU to relax eligibility rules for the third phase of the bloc’s Emissions Trading Scheme, allowing a flood of more offset credits into the market.

However, other analysts dismissed the suggestion and traders said Tuesday that the Barclays note had not played a part in Tuesday’s price fall.

“The market’s not reacting to an analyst note, there is just massive over-supply,” a trader said. The fall in EUA prices came despite the expiry of options on Wednesday, which some traders had thought would be supportive.

Most traders who have taken out options have done so at a strike price of either 8 or 9 euros, according to traders.

“Power prices are weaker and we still have oversupply (of offsets),” another trader said, adding there was no reason for carbon prices to be bullish in the wake of fears that some euro zone countries won't be able to service their debts.

The 2012 baseload German power contract was trading at 52.45 euros/MWh on EEX, down 16 cents from the close on Monday.