Carbon credit prices tumble, to fall more

The carbon credit market has again dived, on prospects of supply increasing. Prices have fallen by more than 20 per cent in six weeks and are at a four-month low.

There are two sets of reasons. Credits from HFC-23 (fluoroform, a potent greenhouse gas) projects will go up, as the suspension on such projects has been lifted. Also, many power plants have been shifting from coal to much cheaper gas, which is passing through a glut, leading to lower demand for purchasing such credits.

Certified Emission Reduction (CER, also called carbon credits) prices are trading only a little above the current financial year’s low, seen in July. They’re down nearly 20 per cent from the recent high of ¤14.07 in October.

Some months earlier, the United Nations’ Forum for Climate Change’s (UNFCC’s) Clean Development Mechanism had suspended carbon credits generated by HFC-23 projects, which had led to a rise in prices. However, many companies in India and China had sold such credits at ¤9-10 each.

Lobbying by these buyers met with success and CDM approved the credits generated by such projects. The decision came last weekend and CER prices on the European climate exchange fell further in the beginning of the week, reaching a level which is the lowest in the past four months.

“The CDM executive board’s decision to lift the suspension on the issuance of carbon credits to HFC-23 projects might have come as good news for the project developers, but it will have its repercussion on the pricing economics of carbon credits. The move is likely to press down the prices of the credits due to the enhanced supply,” said Anmol Singh Jaggi, Director, Gensol Consultants.

Jaggi says the carbon credit market has turned bearish. He says, “The move was largely unexpected, owing to which the prices of the credits had shot up in the recent past. Now that these credits will be added to the market’s breadth, one can safely expect carbon prices to tumble further, a fact that is likely to hurt investors’ confidence. All hopes now hinge on the outcome of the Cancun climate talks. Only a positive result can lift up the battered sentiment in the carbon market.”

Prices were falling in recent weeks also because there was lower demand for such credits from power plants.

According to Platts, the leading information provider on energy, “Coal prices have been rising and gas prices remained subdued for long. This was also bearish for carbon prices, since higher coal values incentivise power generators with the ability to change fuels to switch to burning gas, which is less carbon-intensive, reducing their carbon-purchasing needs.”