Tuesday, March 03, 2009

Roll up, roll up, CO2 credits going cheap, 3-5 Euros a tonne

Related to the previous plea by Stiglitz and Stern for a stable and strong carbon price comes news on what the market really thinks the price of carbon should be and who is buying.

Governments Keep Hunting For Cheap CO2 Credits [PlanetArk]

LONDON - The market for government-level emissions rights under the Kyoto Protocol is alive and well, mostly unfazed by the global economic downturn. Through the most opaque of the emissions trading schemes under the Kyoto climate change pact, nations comfortably below greenhouse gas targets can sell excess emissions rights to other countries in the form of credits called Assigned Amount Units (AAUs).

Critics call them "hot air", arguing that most were generated through restructuring in eastern Europe in the 1990s, when polluting industries in ex-communist countries were shutting anyway, rather than by new investment in clean energy.

Countries such as Austria and Japan are still hunting for these cheap AAU credits, despite the criticisms and the fact that United Nations clean energy project-based offsets, seen as having more environmental integrity, have also fallen in price.

"We started before the recession and we continue to negotiate with potential AAU sellers," said Sascha Eichberger of Kommunalkredit, which manages Austria's CO2 credit purchasing.

He said Austria plans to buy 5-10 million AAUs by 2012 but added that the dropping AAU price has prompted some countries to rethink sales. "The current price development is not what sellers expect to get for AAUs," he said.

The Czech Republic said earlier this month that it had again postponed an auction for 10 million AAUs as it needed to re-draw its sale strategy due to the drop in prices.

One broker told Reuters in January he had heard of AAU negotiations for as low as 3-5 euros a tonne (US$3.81-$6.36), or around half the value of the largest deals signed in 2008.

December AAU deals between seller Poland and buyers Ireland and the World Bank were reportedly done at around 10 euros a tonne, although no parties will confirm this.

Governments remain extremely guarded over AAU prices, despite the fact that the rights are bought with taxpayer money.

Eichberger would not comment on prices but said Austria is in talks with the Czech Republic, Poland, Latvia and Hungary.

A Romanian government official told Reuters he expects Romania to sell 10 million AAUs in the first half of 2009, but also would not comment on current talks or their asking price.

Buyers insist that AAU deals are "greened", meaning their proceeds are earmarked for investment in clean energy or energy efficiency.

Eichberger said Austria had no plans to speak with countries lacking clear greening plans. "Russian and Ukrainian markets at the moment are not interesting for us," he said.

Hungary, which has already sold AAUs to Spain and Belgium, said it may now use revenues to ease its national budget deficit, analysts Point Carbon reported on Tuesday.




Critics argue that increased scrutiny surrounding the environmental integrity of the projects, built in countries like China and India, makes project-based offsets, called Certified Emissions Reductions (CERs), a better alternative than AAUs.

The option for governments to use either CERs or AAUs to meet Kyoto targets has caused a correlation in their prices.

Cheap CER prices, concerns over the integrity of AAUs and the lack of accountability and transparency over where proceeds are spent may see governments opt to buy CERs over AAUs.

But the economic downturn may see an erosion in rich nations' emissions and their subsequent emission offset demand.


No comments: