Carbon credit prices rise 20%

Indication of deeper emission cuts in EU countries by 2020 led to the increase.

The carbon credit market has revived, with prices of carbon emission reduction certificates (CER) up nearly 20 per cent over last month on expectation that Europe would proceed with its plan for a 30 per cent cut in emissions by 2020, without waiting for the global accord review in 2012.

In mid-May, the European Commission released 2009 data showing carbon emission in the region had fallen 11 per cent over last year, to 1.873 billion tonnes. This had led to a drop in prices of CERs, also known as carbon credits, on the European Climate Exchange where most of the trading takes place.

A few days prior to the release of this data, CER prices were at a 52-week high of euro14.53, while prices of such credits generated and sold within Europe, known as EUA or European emission allowance, reached a 52-week high of euro16.73. Both fell by 30 per cent after the report came out.

The European Union climate action commissioner had said, while announcing the data, that apart from reduced economic activity due to recessionary trends, another reason for lower carbon emission was that many power plants had moved from coal-based to gas-based fuel, on account of very low gas prices.

EU action
As for the sequel, Platts, the premier global energy data agency, said, ”The carbon credit certificate prices have taken support from indications that the EU could go ahead with a deeper, 30 per cent cut in economy-wide carbon (CO2) emissions from 1990 levels by 2020, even without a global post-2012 climate deal. Such a target would translate into a 34 per cent cut in EU ETS emissions from 2005 levels by 2020 -– much greater than the existing target of a 21 per cent reduction.”   

The existing accord to reduce carbon emissions is up for review in 2012, beyond which it is uncertain. The last global conference on the subject, at Copenhagen, was not able to provide any clarity on the post-2012 period.

Said Jaldeep Sodhi, vice president, Avalon Consulting: “There is some amount of uncertainty about the future of the climate accord. As a result, some  projects in India aiming at generating carbon credit are in limbo.”

However, Indian companies are optimistic that even if there is no formal accord, post 2012, “some voluntary reduction will be in place. India and China, both favour such voluntary emission reduction targets,” said Seshagiri Rao, Joint MD and group CFO, JSW Steel. The company generates seven million CERs every year. “We have followed a policy to sell credits as and when generated. We have sold CERs at euro 15  and even at euro 10,” Rao said.

Deutsche Bank’s commodity report is bullish on CER prices. Based on projection of higher demand for credit required, it said European emission allowance prices could go up to euro 25 in the next two years and some replacement demand for CERs could also result in higher prices.