Carbon credit prices shoot up after probe constricts supply

Market pricing becomes uncertain after UN probe into data laundering.

Prices of carbon credit certificates on the European climate exchange have risen after the regulator disallowed credits from greenhouse gas HFC-23 from a number of projects. Credits from such projects account for around 10 per cent of total carbon emission certificates (CERs).

Prices of CERs have gone up by 17 per cent. A similar increase has been seen in European certificates.

In July, the United Nations Framework Convention on Climate Change (UNFCCC) launched an investigation on allegations that some companies had raised production of HFC-23, a by-product of the coolant HCFC-22, to earn CERs. A majority of these companies were in India and China.

The Clean Development Mechanism Executive Board said on August 19 that it was putting on hold issuance of carbon offsets from five projects in China that were to destroy HFC-23 and accounted for 10 per cent of the CER supply, a report from Platts said.

Traders said the delay in the release of CERs from these projects would limit the overall supply. Such restrictions may be put on some projects of Indian companies too.

Indian companies like SRF, Gujarat Fluorochemicals, Chemplast Sanmar and Navin Flourine International Ltd are among those facing a UNFCCC investigation.

These restrictions could substantially reduce the flow of CERs into the market. Due to these fears, the prices of carbon credit certificates have gone up 17 per cent, or ¤2, since August. CERs are being traded on the European Climate Exchange for ¤14.

Indian companies holding CERs in the UN registry have started encashing these.

Anmol Jaggi, director, Gensol Consultants Pvt Ltd, said, “We have done a deal on behalf of several Indian companies and sold CERs to be generated in the next 10 years in an unusual forward deal.

CERs of 2.1 million tonnes have been sold for Rs 168 crore. The deal is structured in a way that the seller will get 10 euros per tonne of CER and if prices remain higher than that, a significant part of the increased price will be paid to the sellers.”

There has been an uncertainty on carbon credits as the Kyoto Protocol comes to an end in 2012 and the situation after that is unclear.

The deal protects the downside, as it will be valid even if there is no protocol or compulsion to reduce carbon after 2012.