Champagne corks were likely popping at the UNFCCC as carbon emissions trading schemes in the European Union and under the Kyoto Protocol were connected on Thursday morning after months of technical delays. So will the popping of the ITL cork unleash a torrent of pent up supply onto the market and ditch the CER price?

The ITL (International Transaction Log) enables the efficient transfer of credits between different national registers and the CDM (Clean Development Mechanism) Registry. This mechanism has until now proved to be the key bottleneck, constraining the efficient transfer of credits, particularly those sourced outside the Kyoto region.

ITL delays have further been identified as a key contributor to the significant price spread between EUA and CER prices, so, with the system now operational should we see these prices converging immediately? Well, perhaps not.

Trevor Sikorsky, of Barcap was quoted in the Guardian saying that in all likelihood the market will initially show a widening of the EUA / CER spread as CDM project investors oversupply the market with CER’s, looking to recoup some much needed cash from their investments. How the spread will then narrow will depend on the extent to which forecasts of a medium term undersupply of CER’s prove accurate.

Operationally, the news that the ITL is finally up and running is undoubtedly positive for the industry and in articular for CDM project operators. For short term prices though, the sudden removal of the ‘ITL stopper’ from the CER supply bottle will likely exert a significant downwards pressure.