London (Platts)--15May2009

Final verified CO2 emissions from across the EU fell by 3.06% in 2008
from 2007 levels, the European Commission said Friday.

The EC released final verified figures showing that CO2 emissions from
installations covered by the EU emissions trading scheme stood at 2.118
billion mt, excluding those of Bulgaria, Liechtenstein and Norway, whose 2007
emissions figures were incomplete or unavailable, the EC said in a statement.

The figures showed that a total of 81.7 million mt of Kyoto Protocol
offset credits were surrendered for compliance in 2008, representing 3.9% of
all surrenders, the EC said.

China was the source of 41% of these, 31% came from India, 15% originated
in South Korea and 7% in Brazil.

A further 14 countries accounted for the remaining 5%.

The vast bulk of the offset credits were certified emission reductions
from the UN's clean development mechanism. Emission reduction units from the
joint implementation scheme accounted for only 0.002% of all surrenders.

The combined CER and ERU surrenders in 2008 used up only 6% of the
approximately 1.4 billion mt of offsets that are allowed into the scheme
during its 2008-12 Phase II period, the EC said.

A total of 1.908 billion freely allocated 2008 EU allowances were
submitted, while 85.1 million EUAs were submitted that were from the 2009
allocation or those auctioned, according to the EC.

Emissions in the 27-member state bloc were reduced despite GDP growth of
0.8% in 2008.

While the economic slowdown was felt strongly in the sectors covered by
the EU ETS, the drop in emissions was also due to emission reduction measures
undertaken by installations in reaction to the robust carbon price which
prevailed for most of 2008 before the onset of the recession, the EC said.

"The 3% reduction was partly due to businesses taking measures to cut
their emissions in response to the strong carbon price that prevailed until
the economic downturn started," said EU environment commissioner Stavros
Dimas.

"It confirms that the EU has a well functioning trading system, with a
robust cap, a clear price signal and a liquid market, which is helping us to
cut emissions cost-effectively," he said. "This should encourage other
countries in their efforts to set up comparable domestic cap-and-trade
systems, which we would like to see linked up with the EU ETS to create a
stronger international carbon market."

While the EU ETS remains predominantly focused on CO2 emissions, from
2008 onwards it also includes emissions of nitrous oxide from the production
of nitric acid in the Netherlands and Norway, according to the EC.

RULE CHANGE CUTS NUMBERS IN EU ETS

The number of installations participating in the EU ETS fell by 213 in
2008 from the 2007 number to 11,359 due to a rule that removed many smaller
installations.

However, the volume of emissions covered by the scheme expanded to
include 50 million mt of CO2 equivalent last year due to greater harmonization
of definitions of activities covered.

Iceland, Liechtenstein and Norway also joined the scheme in 2008,
although no installations in Iceland are yet covered, the EC said.

The EC's figures showed a high level of compliance with the EU ETS.

"Of all the installations participating in the scheme last year, 0.9% did
not surrender the required quantity of allowances by the deadline of May 1,
2009," the EC said.

"These installations are typically small and together they account for
less than 0.5% of all emission allocations in the EU," the EC said.

The EC released partial verified data for 2008 on April 1, and has
periodically updated the figures as missing installations reported their data
to the EC. However, until Friday, the data reported had been only the figures
submitted to the EC by each installation under the scheme and had not been
cross-checked.

The figures Friday are the final aggregate CO2 figures, which have been
checked and analyzed by both EU member state national authorities and the EC.

The carbon market showed little immediate reaction to the release of
final CO2 figures by the EC, which were broadly in line with expectations.

Several carbon market traders said that the information was largely
factored into EUA prices already due to several prior weeks of updates by the
EC.

"I would have thought it's all factored in already," one trader said.

Another said he thought the data was "neutral" But added the level of
EUAs handed in by EU ETS compliance companies compared to CERs was
"surprising."

"Installations used very little CERs for compliance, meaning the overhang
of EUAs is not that substantial," the trader said.

Other traders said that the data was a short-term bearish signal for EUA
and CER price movements, but one trader said that the fact that the global
economic downturn resulted in a 3.06% reduction in EU CO2 emissions in 2008
compared to 2007 levels is a "long term bullish" signal.

"It'll be initially bearish, people will look at [the data] and say
'that's a substantial cut'," the trader said. "Basically what you've got is a
situation where people will digest [the data] and it'll be a little bit soft
for the market."

"People will say now that in the first and second quarter of 2009 there
will be a further decline in emissions, and they will factor all of that in
and then begin looking for when they feel there is going to be an economic
turnaround."

One trader was surprised some EUA compliance buyers traded in ERUs as
part of their efforts to meet their mandated EU CO2 emissions reduction cap.

"Some people used ERUs," the trader said. "Can you believe that?"

"I didn't even know that some ERUs were available, that's incredible."

ERUs are the tradable emissions offsets from the UN's JI program, which
is at a much earlier stage of development than the CDM.

Another trader said that the ERUs traded in likely came from "a wind farm
project in New Zealand."

"They must have been a project from New Zealand," the trader said. "There
are only a couple of these, mainly wind farms that have been issuing prior to
the end of April 2009."

EUA futures contracts for delivery in December 2009 on London's European
Climate Exchange were quoted at Eur14.77/mt ($19.99/mt) at 12:30 BST (1130
GMT) Friday, up Eur0.33/mt on the previous close.

The EC's figures were close to a Platts analysis of partial data updated
last month which estimated that the overall verified 2008 CO2 emissions figure
would be 3.2% down from 2007 levels.