Trading carbon emissions hits stormy water

The EU has subsequently decided that after 2012 only projects from less-developed countries would be eligible under the EU ETS. This means that India, China and Brazil will no longer be able to sell the most common CERs to the world's largest market.

The World Bank, however, is committed to buying a new facility of refrigeration CERs which will over-run the deadline of the EU's ban on projects from more developed nations by five months. Observers say this will leave the Bank with a loss.

Already the market price of offsets has plummeted. The ICE CER Index closed last week at EUR8.6 down from a year high of over EUR14. The CER market had a traded value of USD18.3 billion last year, down from USD26.3 billion in its peak year 2008.

Apart from the elephant in the room that the next climate change talks are currently looking dubious in creating a new protocol following the expiration of the Kyoto agreement, the list of projects rushing for UN approval prior to the end of 2012 has created an over-supply in the market.

That glut is partly a result of a financial crisis which cut economic output and pollution in the developed nations meaning less demand for offsets. On top of that the European Commission also plans to sell an extra 300 million permits on the market to raise funds for green energy projects.

The reality of all these market fluctuations and policy changes (on behalf of the EU) may have made the CERs the worst performing commodity this year, although it is not yet the death-knell of carbon trading.

The EU pulling the plug on the hydroflourocarbon scam can hardly be described as unfair. The credits on these schemes could earn five-times as much as other carbon efficient projects.

Indeed China, with its never-ending trade surplus and huge reserves while also being the world's biggest polluter, has caught the EU's eye. It has seen how billions of carbon Euros have helped pay indirectly for China's emergence as a dominant player in green tech manufacture.

The acknowledgement by Su Wei of the NDRC that China is considering changes, may affect some EU policies further down the line. It is keen on paying for sectoral CERs, something the NDRC is considering. The EU's other concern in any new look at China and India, is the certification process.

China will, however also be looking at markets for CERs other than the EU. New Zealand has a one-year old ETS market, although it is relatively small. Australia will move to a carbon trading market from 2015, again with flexible compliance rules.

Bloomberg New Energy Finance estimates that total demand from Australia for CERs up to 2020 could be 330 million tonnes. South Korea is also working towards an ETS by 2015 and is an economy with similar emissions levels to Australia.