No scope for ERU prices to rise – JIAG

London, 21 March (Argus) — Joint Implementation Action Group (JIAG) chairman Lennard de Klerk today said there is no reason that emission reduction unit (ERU) prices could substantially lift from their record lows. The group also announced the closure of its operations.

“Maybe it goes to €0.15/t CO2 equivalent (CO2e) or €0.20/t CO2e but if the mechanism is to work, it would need to be at €5/t CO2e, at the very least,” de Klerk said. “There is no demand and I do not see any new demand coming to the market in the coming years,” he said. The December 2013 ERU contract closed yesterday at €0.11/t CO2e.

JIAG said that it will cease to exist because “under the current circumstances there is no economic rationale to continue promoting this innovative mechanism”.

Reform for joint implementation (JI) is merely a “theoretical exercise” now, de Klerk said. “You can reform JI, but what is the economic good? If the market does not work anymore, then there is no reason why you should want to reform the mechanism.” It is highly unlikely that the UN climate change convention in Warsaw in November this year will sufficiently reform JI, he emphasised.

There is a massive amount of supply coming from the clean development mechanism (CDM) and JI and the only source of demand for ERUs is from the EU emissions trading scheme (ETS), de Klerk noted. “The EU ETS in and of itself has limited demand and I do not see other schemes around the world providing a source of demand for ERUs in the near future”, he said.

ERU prices have crashed because of regulatory uncertainty on the eligibility of ERUs in the EU ETS and the “fundamental problem” that countries are not willing to take on ambitious emission reduction targets, JIAG said.

Continuing uncertainties over whether some ERUs would be eligible in the scheme weighed heavily on prices. “As a result of over half a year of mixed signals from Brussels, compliance buyers were left in the dark,” JIAG said. “Damage was done to JI investors who realised their EURs could turn worthless.”

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