Thursday, November 15, 2007

Some Perversities of the Carbon Market, And the Developing Giants Score Big

I thought I should point out something from a link we posted yesterday.
In India's carbon credit market set to take-off:
A severe winter in Europe this year will mean business worth millions of dollars for Indian companies. Surprised? Welcome to the global trade in carbon credits.
Got that?
If the computer models turn out to be wrong and Europe doesn't experience warming, they will have to pay higher utility bills, so the utilities, in turn, can pay India and China to offset the carbon emissions from higher fuel use.
Talk about your unintended (I hope) consequences.

Here's more on the Clean Development Mechanism and Carbon Markets, read to the end for another perversity. From the Times of India:

Here's how it works. If Europe faces a severe winter, the oil and gas it will consume for heating is bound to rise. If the energy consumption goes up, so will greenhouse gas emissions. And with European countries having fixed targets for emissions under the UN-mandated Kyoto Protocol, they would have to buy more carbon credits from developing countries to offset the increased emissions.

For carbon traders in India, the stakes are high. India is the global market leader having already generated 29 million carbon credits and has another 139 million in the pipeline for sale. With each credit currently selling for 10-17 euros, carbon traders in the country are praying for the cold to settle over Europe so that they get a bigger portion of the global carbon pie for their clients.

These carbon traders work for myriad projects among steel and cement manufacturers, hostels, hydroelectric stations and even temples. India, along with China, is one of the largest suppliers of carbon credits in the world.

"A chill in Europe will heat up the Indian carbon market. The prices should, see a short-term rise," said Ram Babu, managing director of CantorCO2e India Private Limited, one of the biggest multinational players in India's carbon market.

"It's a simple principle of demand and supply. If their demand goes up, there is bound to be a short-term spike in prices," he added.

The price of carbon credits have been steadily rising over the past two weeks. They are currently hovering between 15-17.5 euros per certificate.

"The fact that brokers are buying the certificates and holding on to them and not selling to the final consumer who has to meet the targets means they expect prices to go up in the future," said Kiran Patil, country manager of Ecolutions, a climate change business advisory.

A Deutsche Bank report suggests that prices of the certificates could go up to 35 euros by 2012. But that is a long-term trend. In the short-term, there are several other factors like the European winter that could make a difference to Indian businesses.

"Shifts in geopolitics, along with factors like the cold in Europe are key for Indian certificate suppliers," said Ashutosh Pandey of Emergent Ventures India, another leading consultant in the Indian market.

"When Russia recently cut off gas supply to Europe for a while, EU had to shift to more oil-based power production. Generating power from oil has higher emissions, so the market saw that if the emissions rose, EU would have to buy more credits. The prices naturally went up," he added.

Again, Got that? Russia is in the CDM racket, in fact it is set to be one of the largest sellers of the paper. So by manipulating gas deliveries to Europe, they can move prices in the carbon market.
Interesting, no?