The Parhelion Post 2012 Eligibility Insurance is a new product based on the interest shown by a number of carbon trading houses, financial institutions and project developers. Uncertainty surrounding the post 2012 eligibility of CERs under the EU ETS has recently been enhanced by the decision to block the use of CERs from HFC 23 and adipic acid N2O projects for compliance from May 2013.
This uncertainty can lead to "eligibility clauses" being inserted into purchase contracts which negate the obligation of the purchaser to buy the credits in the event they are deemed ineligible. Where purchasers are willing to assume the eligibility risk, the price they are willing to pay for the CERs is significantly lower due to the uncertainty surrounding eligibility.
The insurance product developed by Parhelion removes eligibility risk and is designed to be flexible enough to work efficiently and economically in a number of different spot, forward purchase or option structures.
Key Benefits of the Insurance
By removing the eligibility risk Parhelion's product can:
- Enable project developers to receive a higher price for their CER production, providing vital project funding
- Allow carbon traders to employ hedging strategies on insured CERs, crystallising any gains
- Aid market liquidity
- Allow carbon traders to book the intrinsic value of financial instruments based on CERs delivered post 2012
- Allow the value of forward trades of CERs delivered post 2012 to be recognised
- Provide ineligibility protection for late delivered 2012 generated CERs
Parhelion will provide a "Post 2012 Eligibility" insurance policy under which buyers of CERs would be insured against the risk that the CERs generated by a given project are not 100% eligible for EU ETS compliance purposes.
This insurance product is backed by A+ security.
The insured value will be the agreed number of CERs generated by the project or portfolio of projects (or delivered to the buyer) during an agreed period, times the eligible CER market price on the CER issuance date, subject to a pre agreed limit.
There will be variations in the exact method for calculating the insured value, depending on the specific project(s) and transaction structure being utilised.
This shall vary by policy. Parhelion will not insure any CERs beyond the initial Crediting Period for CER issuance if this expires during the policy period.
- CER buyers & sellers
- Transactions with forward sale / purchase agreements of CERs
- Option transactions to purchase CERs at a future date
- Individual projects or portfolios
This is a flexible, specialised insurance product which is most effectively employed by working closely with Parhelion to formulate the most cost effective coverage for the particular project, or portfolio of projects concerned.
Contact us to discuss how best to remove eligibility risk from your carbon based transactions.