AAU carbon trade drying up

The international market for AAU carbon allowances is drying up, according to a leading carbon analyst. The trade in government-level Kyoto carbon credits is winding down after numerous sales from eastern European nations holding surpluses to Japan, Norway and EU nations to help them meet their Kyoto targets.

Ukraine, Poland and Hungary have been among the big sellers of AAUs over the past two years but neighbours slower to get their credits to market such as Bulgaria and Romania now face difficulty realising the value in these carbon assets. The hit to economic growth in developed countries amid global recession has seen emissions fall sharply – 11 per cent last year in the EU – and reduced demand for emissions permits as a result.

"There is no demand left for additional AAUs before 2012," Societe Generale carbon analyst Emmanuel Fages told Reuters. "Small deals are still possible, but the chances are lower and it will be getting harder."

Analysis by JI Quarterly finds that since late 2008 twenty sales covering 170 million AAUs have gone through under Green Investment Schemes (GIS) arrangements. But there is a supply more than ten times that amount, roughly 1.8 billion, that seller countries have been willing to sell. JIQ says recent estimates on total demand are “far below” 1 billion tonnes.

Only a fraction of the surplus AAUs held by eastern European countries has made it to the market. Pressure on buyers and sellers not to flood the global carbon market with these so-called ‘hot air’ credits forced the development of green investment scheme programmes around them – attaching sustainable development caveats to the revenues from their sales. Russia is also holding on to an enormous stockpile it is hoping to use for post-Kyoto commitments.

But Romania and Bulgaria are now moving on legislation to join the AAU trade, Reuters reports. They are eyeing €1 billion each in revenues from their surpluses of around 300 and 200 million AAUs, respectively. At €3 to €5 per AAU, prices would be well below the €8 to €14 range of previous sales in a stronger market.