Carbon offsets near record low, worst performing commodity

LONDON, (Reuters) – Carbon offsets neared all-time  lows yesterday, confirming their status as the world’s worst  performing commodity, as slumping demand meets rising supply of  the U.N. instrument traded under the Kyoto Protocol.  A worsening global economic outlook has dented prices for  emissions permits which depend on a robust economy belching  greenhouse gases into the air, and has also impacted oil,  grains, coal and natural gas.

Carbon offsets have fared uniquely badly because a U.N.  climate panel continues to print new offsets, regardless of a  widening glut in emissions permits in the main demand market,  the European Union’s carbon market. Countries and companies in the developed world can buy  offsets as a way to meet emissions caps agreed under Kyoto,  paying for cuts in developing country projects instead, but the  financial crisis has left a global oversupply. “If the European economy goes through a double dip  (recession) it could be a lethal threat for the carbon market,”  said Marius-Cristian Frunza, analyst at Schwarzthal Kapital.

The U.N. scheme for generating certified emissions  reductions (CERs), called the clean development mechanism (CDM),  faces additional problems besides the economy.

Failure by countries to agree a new round of carbon caps  after 2012 under drifting U.N. climate talks, has further curbed  prospective demand.

The financial crisis has blown off course talks to agree a  global climate deal, which now seems years off. The CER market  had a traded value of $18.3 billion last year, down from $26.3  billion in its peak year 2008.
Adding to CER woes, the EU has banned from 2013 imports of  the most common type of offset, from refrigerant plants in  China, prompting investors to dump these.