UN Carbon Credit Investors See Prospects After 2012

3 Post-2012 Deals Announced This Week

29.10.2010 -

Investors in the United Nations' Clean Development Mechanism (CDM) now have more confidence in the carbon offset market after 2012 after the number of post-2012 carbon credit deals rose in recent weeks.

The CDM is part of a U.N. treaty to fight climate change, the Kyoto Protocol, whose first commitment period (2008-2012) sets emissions targets for rich nations that drive demand for carbon credits called certified emissions reductions (CERs).

Investors earn CERs for developing clean energy projects in poorer nations. However, the Kyoto Protocol expires in 2012 and talks on a successor have so far failed to make much progress.

Earlier this year, many investors were not very confident that CERs would have a market value after 2012, as concerns grew over the shape or even existence of the CDM after that time.

On Thursday, UK-based project developer Camco International reported for the first time that it had secured options in CERs due to be issued after 2012 because of more interest from buyers and more market transactions taking place.

"The market has evolved. There is a tangible value for post-2012 credits," Yariv Cohen, Camco's chief carbon officer, told Reuters.

In a project development update, Camco said it has contracts for a risked 28.1 million tons and holds contractual rights of up to a further risked 27.6 million tons.

More Deals, Clarity
This week alone saw three post-2012 deals announced.

A consortium agreed to buy 2 million pre-2012 and post-2012 CERs from a Moroccan wind farm project, while Vitol SA bought 8.5 million CERs from carbon asset manager KYOTOenergy Pte, of which 92% are expected to be issued after 2012.

German chemical company Lanxess invested €7 million in an Indian biomass project to earn post-2012 CERs, Point Carbon reported.

In September, French carbon investor CDC Climat set up a subsidiary to manage €60 million of investment in carbon assets, including post-2012 credits.

"Demand been up for a quite a while. People are making sure they are positioned properly for 2012," said Simon Glossop, partner at CF Partners.

Over the past few months, there has also been more clarity about what will and will not be eligible for use in the EU's Emissions Trading Scheme (EU ETS) from 2013, investors said.

The European Union will propose how to restrict the use of some CERs from industrial gas projects in the third phase of its carbon market (2013-2020) before U.N. climate change talks in Cancun, Mexico, which start on Nov. 26.

The CDM's Executive Board is probing projects to destroy the greenhouse gas hydrofluorocarbon-23 after environmental group CDM Watch accused them of gaming the system. The group has also called for credits from projects which destroy the pollutant nitrous oxide to be banned from the EU ETS.

Potentially, the impact of banning the two project types could be huge, as they make up nearly three quarters of all CERs issued so far. But many companies have welcomed more clarity, particularly those who do not invest in such project types.

"Not all CERs will be eligible to 2020. This is old news. But now we are approaching 2012, companies are starting to look at their strategy beyond 2012," said Sascha Lafeld, executive board member at carbon asset manager First Climate.