The Hindu Business Line : Carbon credit prices crash in Europe

Emission reports from the Netherlands, Czech Republic, France and Walloon region of Belgium stated that their emissions in 2005 were at lower levels than what they were allowed to emit

New Delhi , May 1

Indian corporates' hopes of cashing in on carbon credits could take a hit with the European carbon prices plummeting during the last week.

The carbon trading market in Europe has witnessed high level of volatility during the past few days as prices have crashed by more than 50 per cent (from about € 30 per CER to about € 13 per CER).

This happened because several European countries have reported better environmental compliance by bringing down their green house gas (GHG) emissions during 2005.

The demand for carbon credits depends on the actual levels of GHG emissions of various countries vis-à-vis their targeted emission reductions. If the countries achieve higher level of emission reductions than their targets, then the companies in those countries need not buy additional carbon credits. But, if they emit higher level of GHG, then they have to buy additional carbon credits - in their own country and in developing countries - to meet their emission reduction targets.

Early last week, prices in the European carbon exchange market opened at high levels of € 30.60 for December 06. But, then came carbon dioxide emission reports from the Netherlands, Czech Republic, France and Walloon region of Belgium - all of them stated that their emissions in 2005 were at lower levels than what they were allowed. Following these reports, carbon prices fell with the Dec `06 contract closing at € 13.60 on Friday.

Spain was the exception to the trend reporting higher levels of emission. By May 15, major European countries such as Britain, Germany, Italy, Poland and Portugal would be reporting their actual levels of emission during 2005. "Which way the carbon price moves depends on their performance reports for the year," said a trader.

Environmental analysts point out that greater awareness of emission norms and the heavy cost involved for non-compliance, the demand for carbon credits to offset higher GHG emissions may be dampened and may not yield high returns.

Some of the Indian corporates that have accumulated or are in the process of accumulating credits include Gujarat Fluorochemicals Ltd, SRF, DCM Shriram Ltd, Reliance Industries, Birla Corporation, Tata Sponge Iron, ACC, Gujarat Ambuja and JSW Steel.