The prices for Certified Emissions Reductions (CERs) have fallen sharply since mid-July, as energy and carbon markets react to falls in the world oil price. On the European Climate Exchange, the leading exchange for the secondary market trade of issued CERs, December 2008 CERs closed at ?17.25 ($US27) on August 1. Thats down ?5.50, or 24 per cent below their recent peak of ?22.94 in early July. CERs are carbon offset credits generated for reducing greenhouse emissions in developing countries under the UN climate change conventions Clean Development Mechanism (CDM). With CDM projects in dozens of countries and the carbon credits they generate accepted in emissions trading schemes emerging in developed countries, CER prices are the closest thing there is to a world carbon price.

The fall in CER prices has largely mirrored the decline in EUAs, the EU emissions permits which guide the European-dominated trade in secondary CERs. The spread between the two had narrowed by the end of July and is currently $4. The later dated CER contracts have seen heavier falls, flattening the rising forward price curve once again after it had begun to take on a more conventional shape. Dec 12 CERs dropped more than $6 from their peak a month ago to close at $18.80 on August 1. As the oil price eases back from its peak around $140 a barrel in July, gas prices follow. At the same time coal prices have been going up. Power companies in Europe are less inclined to use coal and more likely to use gas, a cleaner burning fuel which requires fewer emission permits per unit of output. This in turn reduces demand for EUAs in Europe - and for CERs, which can be substituted for EUAs.

Market surveys by IDEAcarbon suggest that prices for primary CERs, yet to be issued from projects under development, also began to slip back over the past week in response to the general slide in carbon markets. Prices are around $9 to $16 depending on how the risks of non-delivery are shared between buyer and seller. Prices also vary from country to country and have remained relatively stable in lower-priced countries led by China. They have seen more movement in countries where higher prices are asked by sellers, such as India.