Update: Ukraine to sign world’s largest carbon deal

Ukraine is to sell 150 million government emission rights in the world’s largest carbon deal.

The government’s cabinet of ministers yesterday published an order allowing the National Environmental Investment Agency to sell the assigned amount units (AAUs) to two private companies.

Geneva-based financial services company Dighton Carbon is in negotiations to buy 100 million AAUs, while New Zealand-based Tawhaki International may buy 50 million.

The price was not given for the credits, but rumours suggest they were in the range of €7-10 per AAU.

Ukrainian government sources refused to comment at press time.

The National Environmental Investment Agency will also sign a deal with the UK arm of Japanese Bank Nomura International, where Nomura will act as the facilitator for government purchases by Japan from Ukraine.

Controversial

Selling government emission rights to private companies is controversial as deals are often opaque and it is questionable whether funds paid are earmarked for any environmental benefit.

A trader with Dighton Carbon, a subsidiary of Dighton Services, told Point Carbon that the cash would “eventually” go toward some environmental benefit, but would not be drawn on the details.

The source at the company, which only set up its carbon business in the last 12 months, said that it was not acting as an intermediary on behalf of anyone, but was working on its own and planned to sell the rights on at a profit.

The deal, which could be valued as high as €1 billion depending on price, is huge for Dighton, which last year had just $200 million under management.

“We are working with some companies for sure and let’s just say we are open to work with any partner that is interested,” said the trader, who asked not to be named.

The company is listed as having owners located in Russia and Monaco.

No contacts could be found for Tawhaki International and the company did not show up on the New Zealand’s companies register.

Last year

The deal is only the second public transaction involving the sale of AAUs to a private company.

In a controversial transaction last year Slovakia agreed to sell 10 million rights to a US-based shell company called Interblue for a price of around €6.00 per AAU.

The deal was not backed by any green investment scheme and the minister involved subsequently lost his job.

It is unclear where the AAUs ended up but one source in New Zealand claimed to have been offered the AAUs.

Observers say only companies in countries with a Kyoto cap and some form of corporate target, such as in Australia, Japan, New Zealand or Switzerland, would have an interest in buying the rights as they are used mainly by countries to comply with emission caps.

Post-2012

One observer told Point Carbon that these types of deals could threaten the integrity of governmental emissions trading and could have an impact on negotiating a new post-2012 global climate deal in Copenhagen in December.

“Some of the proposals for 2012, like no-lose sector targets, could work out quite similar to the GIS. It is the government that is trading and not business,” said Kristian Tangen, a consultant in Point Carbon’s advisory services.

“But if you can’t track where the AAUs are going and you can’t see that the money is being spent, then you could expect that this way of thinking with government deals could come under scrutiny and negotiators would focus on facilitating business to business deals instead.”

Tangen said that if there is a perception that deals are not transparent or liquid enough it “could raise the question in negotiations whether this is a model that is worthwhile following post-2012 as well.”

“If the market is not functioning and giving reductions then why keep it post-2012?”

One trader at an investment bank agreed.

“One question I have is how the money from this deal will be spent? Governments insist on money going towards a GIS, but in this sense why would private companies care?”

“You have these things sell them at a profit and you don’t care. I cannot believe they are going to hold this long position for around one billion euros,” one trader at an investment bank said.