Friday, March 14, 2008

Carbon Trading Companies facing difficulties

The FT today report on the increased losses on EcoSecurities - a carbon trading company. This all leads back to the poor design of the system. Where were the environmental economists?

This article provides some interesting insights into the working of the scheme from ground level.

EcoSecurities falls as loss exceeds forecast [FT]

EcoSecurities warned of difficulties in the burgeoning market in carbon credits as its shares plunged 17 per cent on Thursday.

The carbon trading group made a loss of €43.3m (£33.1m) in 2007, compared with a loss of €19.5m in 2006, on revenues of €7.2m, up from €3m. The loss was much worse than expected partly because of the failure of a contract to deliver 900,000 carbon credits to a company in Mauritius, for which EcoSecurities had to pay €9.2m.

Shares in the company, which halved late last year after it announced delays in the issuance of many of its credits, fell 24p to 116p.

Bruce Usher, chief executive of the carbon trading group, said regulatory difficulties still dogged the fledgling carbon market.

“Conditions in the carbon market are less than ideal. Projects [to generate carbon credits] do get registered and [the credits are] issued, but it’s a very inefficient system,” he said.

He added: “It will continue to be difficult for a while. There is no immediate-term panacea to these problems.”

Carbon credits are issued by the United Nations under a provision of the Kyoto protocol known as the clean development mechanism. Projects in developing countries that reduce emissions, such as wind farms or solar panels, are rewarded with a carbon credit for every tonne of carbon dioxide avoided. Developed countries can buy these credits as a contribution towards their obligation to cut their emissions by 2012.

The credits can also be bought by companies covered by the European Union emissions trading scheme. UN credits sell for between €5 and €15 a tonne, while EU carbon permits traded at about €22 on Thursday.

Mr Usher said trading was being made more difficult by a delay in allowing UN credits to be bought by companies in the European trading scheme. The system necessary to allow such trades will not be ready before April 2009.

Andrew Shepherd-Barron, an analyst at KBC Peel Hunt, said the results were well below his expectations of a €27.6m loss, but said: “It looks much worse than it is.”

He said the company had not managed to register many carbon projects with the UN in the past four months. But he said the stock market was being “demanding” in pricing EcoSecurities shares so low, because it did not give full value to the company’s portfolio of 130m credits.


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