Climate talks at Durban to decide future of carbon markets

Vishwanath Kulkarni New Delhi | Updated on November 28, 2011

Carbon Credits Table

Indian companies looking to earn cash from carbon credits may be in for disappointment as prospects for global carbon trade turn bleak. Prices have hit an all time low ahead of the Durban climate talks starting Monday, where the fate of Kyoto Protocol will be decided.

The first commitment period of Kyoto Protocol, the global legally binding agreement for reducing emissions on which the current carbon market is based, will come to an end in December 2012. Differences between developed and developing countries on the continuance of Kyoto beyond 2012 have made the carbon markets' future uncertain.

Carbon markets weak

“It is a tricky situation,” said Mr Ashutosh Pandey, CEO of carbon advisory business at Emergent Ventures, attributing the slump in carbon credit prices to the poor demand from the recession hit European Union. Prices of carbon credits hit a low €6 last week from about €12-13 in July on high supplies from China and India and weaker demand from the EU.

“I have stopped looking at prices. It is scary and they may fall further,” Mr Pandey said. The price crash has resulted in a big value loss for those Indian firms holding on to carbon credits.

India with 745 projects accounts for 20.63 per cent of the total 3612 clean development mechanism (CDM) projects registered with the UN Framework on Climate Change. Indian companies account for 16 per cent of the 78.10 crore carbon credits issued.

“The carbon markets are almost dead as climate negotiators are unlikely to arrive at a consensus on the Kyoto Protocol replacement at Durban. There is also a talk of concluding a global deal by 2015,” said Mr Anmol Jaggi, Director, Gensol Consultants, a carbon advisory firm.

EU woes

Recent efforts by the UN panel to curtail supplies of carbon credits have not helped lift the market sentiments either. As Europe reels under financial crisis and with no industrial production, the demand for carbon credits remains poor, Mr Jaggi added.

That the European economies are facing difficult times further makes it tougher to continue the Kyoto Protocol unless other developed and developing countries agree to abide by mandatory emission reduction targets.

Earlier many European companies have complained that their global competitiveness was hit by emission reduction targets, which only some developed countries had mandated – US, Australia did not even commit to the current Kyoto Protocol.

However, Mr Pandey feels that the carbon market will continue to exist as the market mechanism has been created. The EU has already stated that it was ready to accept credits generated from CDM projects till end of 2012 in the third phase of EU Emission Trading System which starts from 2013 and goes till 2020. Moreover, the current set up of multilateral trading in carbon credits may go bilateral or the regional way. Japan, which is opposed to extension of Kyoto Protocol, has already expressed its willingness to source credit from India beyond 2012 on a bilateral basis.

Published on November 27, 2011

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