Kyoto CO2 offsets surge on 4th HFC project review

LONDON (Reuters) - Kyoto Protocol carbon offset futures rose by 3.8 percent to a seven-week high early on Thursday as concerns grew over short-term supply after a fourth hydrofluorocarbon (HFC) project was put under review by the UN.

Benchmark Certified Emissions Reduction (CER) prices climbed to 13.04 euros a tonne by 0824 GMT, the highest since July 2. Volume was heavy at over 2,250 lots traded.

The spread between Dec-10 CER futures and the equivalent European Union carbon permit futures (EUAs) narrowed to 1.44 euros a tonne, the lowest since the end of May and down 67 cents or 32 percent from Monday's close of 2.11 euros.

Dec-10 EUAs trading on the European Climate Exchange were up 10 cents or 0.7 percent to 14.50 euros a tonne on moderate volume of 2,350 lots traded.

A UN panel will now review carbon offset requests by four Chinese HFC projects, the UN said on its website, a sign the most lucrative projects under Kyoto's Clean Development Mechanism (CDM) scheme will face more scrutiny.

The fourth project, owned by Changshu 3F Zhonghao New Chemical Materials Co., will now have its request for 3.3 million CERs reviewed by a UN panel, the UN said on Wednesday.

Analysts told Reuters CER issuances to these four HFC projects, the most lucrative under the scheme, could be delayed for up to three months, and that other HFC-destroying installations seeking credits will likely be treated similarly.

The four HFC projects under review have received over 73 million CERs to date, accounting for around 17 percent of the total issued by the UN, Reuters data showed. HFC offsets make up around half the 430 million issued so far.

For this reason, traders are worried that these reviews will squeeze supply in an already starved market. These concerns were supported by the CER futures curve moving further into backwardation.

The Dec-10 contracts are now trading some 70 cents above the Dec-12s.

German Calendar 2011 baseload power trading on the EEX rose by 62 cents to 50.25 euros per megawatt hour while day-ahead British natural gas prices added 1.2 pence or 3.1 percent to 40.00 pence per therm.

U.S. crude oil futures rose to over $76 on Thursday, boosted by a rally in Asian equities as investors focused on the prospects for accelerating Chinese demand for natural resources.