Environmental Engineering Reference
In-Depth Information
been restricted by all Member States (Alberola
and Chevallier, 2009).
ETS, such as Land Use, Land Use Change and
Forestry (LULUCF) projects.
Common Risk Factors
2. The import limit of CERs within the EU
emissions trading system
Similarly, we may identify several common risk
factors between EUAs and CERs.
Since the ITL-CITL connection, Kyoto credits
may be imported into the EU ETS, and are valid
for compliance up to 13.4% on average. As de-
tailed in Section 2.1, the EUA-CER price arbitrage
becomes possible up to that limit. Investors will
maximize their profits by buying the maximum
volume of CERs allowed for compliance and sell-
ing the same amount EUAs when the EUA-CER
spread is at its maximum,
i.e.
in the range of €6
to €9. Mansanet-Bataller et al. (2011) provide a
detailed analysis of the determinants of EUA and
CER prices. Besides, they study the determinants
of the EUA-CER spread with regard to market
microstructure mechanisms (such as the volume
of allowances exchanged, etc).
Concerning the role played by the CER import
limit for compliance within the EU trading system,
we may proceed with the following counter-factual
exercise. Eighty million tons of CERs have been
used for compliance to cover verified emissions
in 2008 (according to the EU Commission).
8
At
the same time, 250 million tons of CERs have
been issued (according to the CDM Pipeline). If
we assume the CER issuance rate to be constant,
9
the Mission Climat of Caisse des Dépôts has been
computing from UNEP Risoe CDM Pipeline the
path for the stock of CERs available for compli-
ance within the EU ETS over time, as depicted
in Figure 2.
Figure 2 shows the path of CERs available for
compliance in the EU ETS at time
t
during Phase
II (2008-2012). The solid orange lines denote the
stock of CERs available corrected for various
issuance uncertainties, while the solid green lines
indicate the total gross supply of CER issued. We
observe on this graph that, due to technical and
institutional constraints, firms could not use more
1. The ITL-CITL connection
On October 19, 2008 the European Commis-
sion's “Community Independent Transaction
Log” (CITL) connected to the United Nations'
“International Transaction Log” (ITL). The ITL-
CITL connection involved the EU's 27 Member
States disconnecting their national registries, and
re-connecting them to the ITL. Simultaneously,
the CITL connected directly to the ITL. These
operations allowed the delivery of sellers' inter-
national credits from the Kyoto Protocol (such as
CERs) into buyers' EU national registries. Before
that date, issued CERs remained in the UN CDM
Registry, waiting for the connection with the EU
registry to be completed.
During Phase II of the EU ETS (2008-2012),
the EU Commission has announced that the use
of CERs by industrial installations will be capped
at 270 million tons per year. For Phase III (2013-
2020), the limit for existing installations will be 40
million tons per year. Altogether, Phase III CER
imports will add up to 300 million tons. Thus, the
post-2008 EU ETS CER import limit has been
fixed at 1.7 billion tons.
7
Therefore, the ITL-CITL
connection has filled the risk factor common to
CDM project developers and investors. First, it
has provided stimulus to CER and EUA trading,
as the barriers to transfer allowances between UN
and EU registries have been removed. Second, it
has offered to EU investors in CDM projects the
possibility to monetize their assets, by using CERs
towards their own compliance or by exchanging
them on the European market as secondary CERs.
However, it seems worth noting that some types
