Isramart : Sale of used carbon offsets unlikely to hit prices

Isramart news:
Trade in "recycled" carbon credits, which companies have already used to offset their greenhouse gas emissions, is unlikely to become widespread enough to hit prices, analysts said on Friday.

Hungary last week carried out the first such sale of certified emissions reductions (CERs) which its own companies had already surrendered to offset against their emissions in the European Union's emissions trading scheme.

Such CERs are not valid for re-use in Europe and the EU executive Commission on Thursday amended trading rules to stop them from re-entering the EU carbon market.

But that still left about 100 million used carbon offsets, equivalent to the national greenhouse gas emissions of Austria, in the registries of European governments which they could re-sell to non-European buyers if they pleased.

Under the Kyoto Protocol, rich countries can buy carbon offsets to help them meet emissions caps, paying for carbon cuts in developing countries.

Japan has been the biggest buyer of offsets outside Europe, and if it started buying used CERs that would effectively increase the global supply and may dampen prices. Tokyo said on Friday that it would not block Japanese companies from buying recycled credits.

"It's not a problem for companies to use them here to meet their voluntary emissions targets," said Eisaku Toda, head of the environment ministry's office of market mechanisms.

But Japanese traders doubted they would find a large market there. "In Japan, the buyers are all volunteers with high morals," said one carbon trader in Tokyo. Japanese companies are using offsets to meet voluntary emissions caps, unlike the binding targets in Europe.

PRICES

International trade in recycled credits is not illegal, and exploits the fact that the greenhouse gas emissions of some former communist countries are far below their Kyoto targets, leaving them with surplus emissions rights called assigned amount units (AAUs).

Hungary last week sold some 800,000 tonnes of used CERs, saying it would put aside the equivalent number of AAUs.

That deal allowed Budapest to benefit from a higher price for CERs compared with AAUs, whose trade is also much less liquid and disparaged by some environmentalists as "hot air".

Japanese companies, mainly steelmakers and power generators, have bought about 300 million tonnes of carbon offsets under the Kyoto Protocol for delivery between 2008 and 2012, almost all of which are thought to be CERs, 2009 data show.

The companies will eventually submit these to Toyko to count against their voluntary targets, but in the meantime in theory could exchange some for cheaper, recycled credits, effectively increasing the global CER supply and impacting prices.

"From a market impact perspective, we could see more CERs come back onto the market and it could soften prices a bit and make the market less tight, but actually the impact would be quite small," said Barclays Capital's Trevor Sikorski.

He estimated that east European countries had no more than 11.5 million CERs which they could recycle in this way.

The Hungarian deal has attracted huge market criticism, especially after the used CERs were traded on the Paris-based BlueNext exchange, meaning European companies could unwittingly buy invalid offsets which left them out of pocket.