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Carbon credit market sags even after Durban climate talks

Rajesh Bhayani & Piyali Mandal  |  Mumbai 

Emission reduction certificate prices at record lows, reflect question marks on the climate change policy.

To the surprise of the carbon trading market, prices of carbon emission reduction (CER) certificates traded on the Intercontinental Exchange have been sliding even after last week’s global deal on future emission reduction.

CER prices closed at a then all-time low on Friday, when the Durban talks were leading to uncertainty on a deal. Yet, after the weekend agreement, CER prices in the past three sessions have fallen nearly 22.8 per cent, over and above the 37.2 per cent fall in the past three months till last Friday.

Last Friday, CER prices closed at 5.3. It opened slightly higher on Monday but prices have been falling since and reached a further low of 4.1 on Wednesday in the opening session.

According to Indian companies, the prices may be faltering due to lack of commitment from big nations. The day after the climate change talks closed, Canada said it would not be part of the second commitment period of the Kyoto Protocol. With Russia, Canada and Japan out of the picture, and the US never ratifying the KP, companies here are worried over the fate of the credit points they already own. “Even after the extension of KP, there is uncertainty in the market. With countries pulling out of Kyoto, the demand for CERs are bound to come down,” said an official with one of the credit generators.

Prices were falling till recently because there was no certainty that the KP would have a future beyond 2012. Another reason was the economic crisis in Europe, the major market for CERs, mostly generated by Chinese and Indian companies. When the market opened on Monday, after the deal at Durban, speculators were expected to enter and pull prices up but that has not happened. Market analysts are saying the actual demand will come from European carbon emitting companies but would take time.

“In the medium term, CER prices will go up when risk appetite returns among investors and genuine demand emerges,” said Jaldeep Sodhi, executive director, Avalon Consulting. Several Indian companies are wanting to encash the carbon credits they received in the form of CERs if the prices improve.

The UN climate talks have okayed a schedule for a 2015 accord that is to, for the first time, legally force all major carbon polluters to cut greenhouse gas emissions. Just when climate commentators had given up hope at Durban, the Conference of Parties salvaged the talks and came up with major decisions in the final hour, which includes extension of KP, operationalisation of a much-needed ‘green climate fund’ and a new and legally binding treaty. This extension means a renewed lease of life for the Clean Development Mechanism (CDM). CDM allows tradeable credits to companies that set up environmentally-friendly projects. As on November, there were 2,123 approved CDM projects in India. Of these, 738 were registered with the United Nations Framework Conven-tion on Climate Change.

First Published: Thu, December 15 2011. 00:53 IST