Fall in crude oil prices affects carbon credits mkt

The ongoing global economic downturn and a sharp fall in crude oil prices in the last few months have dampened the market for carbon credits.

The prices of carbon credits dropped nearly 75 per cent in 2008, leaving those who had invested in them with huge losses.

The reason: Companies have started shifting from coal to oil-based fuels and this has reduced their requirement for carbon credits as coal pollutes more, says V Shanmugham, chief economist at MCX, a commodity exchange.

The carbon credits earned from projects that reduce carbon emissions were priced at ¤30 at the beginning of 2008. The prices came down to around ¤22 in the middle of the year and have now hit ¤8 per carbon emission reduction (CER) point.

He said the slowdown also led to lack of growth in the number of clean development mechanism (CDM) projects in the country. While India registered 426 CDM projects with the United Nations Framework Convention on Climate Change (UNFCCC) in 2007, it could register only 430 in 2008. This was despite the number of rejected projects remaining at the 40-41 level in the last two years and an increase in awareness levels.

CDM is an arrangement under the Kyoto Protocol that allows developed countries with greenhouse gas reduction commitments to invest in projects that reduce emissions in developing countries and claim carbon credits for doing so.

According to Robert Taylor of the CDM consultant company, Agrinergy, the fall in demand has been mainly due to a fall in emissions and GDP growth. However, decisions on CDM in the Copenhagen round of the UNFCCC talks in December this year may determine future price trends.

The prices more or less remained steady at ¤20-22 in April 2008 and peaked to ¤30 in mid-June before beginning to fall and ending at ¤8 in February, said Taylor.