The price of offset credits, which can be utilized for compliance by certain companies within the EU Emissions Trading System (EU ETS), has experienced a significant increase of up to 45% in the past two weeks. The surge in demand, driven by the approaching compliance deadline, has caused prices to rise due to limited availability of spot Compliance Period 2 Certified Emission Reductions (CP2 CERs).
Louis Redshaw, founder of Redshaw Advisors, highlighted the situation, stating, "There are a number of companies that want to buy cheaper Certified Emission Reductions in place of EU allowances for the 30th April deadline and there are limited numbers of sellers with qualifying spot CERs available."
CP1 CERs are no longer eligible within the EU ETS as of 31st March, making CP2 CERs the sought-after option, as they remain eligible under the scheme until at least 2020.
Emitters have the ability to use offset allowances to cover a certain percentage of their emissions each year. While the majority of this quota was utilized during Phase 2 (2008-2012), some emitters still have the opportunity to use offsets to reduce compliance costs, particularly New Entrants to the scheme from 2013 and airlines, which can cover 4.5% and 1.5% of their annual emissions, respectively, through offset credits.
Estimates for the remaining offset allowance usage vary, but it is expected that emitters will convert approximately 219 million metric tons (MT) of CERs (both CP1 and CP2) and Emission Reduction Units (ERUs) into EU allowances by 30th April, 2015, to comply with 2014 emissions.
The remaining offset usage for the final six years of Phase 3, up until 2020, remains uncertain. This is partly due to the likelihood that many smaller emitters may not utilize their offset allowance. Analysts predict that offset usage during the last six years of the phase could range between 130 MT and 250 MT.
