Kyoto Project Financing Demand Seen Robust to 2012
Date: 15-May-06
Country: GERMANY
Author: Gerard Wynn
The Kyoto Protocol allows rich states to fund cuts in greenhouse gas emissions in developing countries, and count this towards their own 2008 to 2012 Kyoto pollution targets.
But they can also buy such pollution reduction units -- or carbon credits -- in a European market where prices have crashed by over 65 percent in the past three weeks, throwing into doubt demand in developing countries.
Investors, who play the price differences between carbon credits prices globally, point to how far countries including Canada, Japan, Italy and Spain are behind -- or short -- of their Kyoto targets.
"The fundamentals haven't changed," said Dirk Forrister, European Managing Director at Natsource, referring to the EU price dive.
Natsource has a 510 million euros (US$656.6 million) fund investing in clean energy and other projects in developing countries.
Some 40 industrialised countries face targets under Kyoto to cut their emissions of heat-trapping, greenhouse gases such as carbon dioxide (CO2) between 2008 and 2012.
"The (total global) Kyoto short is at least 3.5 billion tonnes carbon over the five-year period," Forrister told Reuters, speaking on the fringes of a carbon markets trade fair in Cologne.
Carbon investors also believe that the demand for Kyoto credits will rise as countries near the Kyoto target deadline between 2008 and 2012.
This period coincides with the second phase of the European market, which traders expect to have tighter pollution limits and therefore higher EU credit prices than at present.
CANADA
However, in further bearish signs, demand from Canada, which has the third biggest short after the EU and Japan, was thrown into doubt last month when it said it could not meet its Kyoto target.
Another bearish influence are so-called Assigned Amount Units (AAUs), credits which Kyoto short countries can buy from Russia, Ukraine and other countries, which have large surpluses of this so-called "hot air".
European carbon credits for December 2006 delivery traded at 10.75 euros (US$13.84) per tonne on the European Climate Chance in mid-morning on Friday, down from a peak of 31 euros last month.
But prices were holding up for 2008 delivery, at 17.25 euros, as traders expected a tougher EU market between 2008 and 2012.
Forrister estimated a price for Kyoto credits between 9 and 11 euros between 2008 and 2012 -- the discount to European prices reflecting greater risk.
The European price crash followed the discovery that several EU countries had fewer than expected emissions in 2005, dampening demand for credits.
The true picture of European demand will be revealed on Monday, when the EC publishes complete 2005 emissions data.
