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India cuts carbon stockpile, no rush to sell rest

Developers of Indian clean-energy projects have winnowed down a stockpile of UN-backed carbon offsets, but are in no rush to sell the remainder as they hold out for higher prices.

world Updated: Jun 22, 2010 14:59 IST

Developers of Indian clean-energy projects have winnowed down a stockpile of UN-backed carbon offsets, but are in no rush to sell the remainder as they hold out for higher prices.

Industry sources put the outstanding stockpile at up to 10 million tonnes, equivalent to about a month's issuance under a UN scheme that rewards firms for cutting greenhouse gas output by allowing them to sell the saved emissions.

India is the second largest source of these certified emissions reductions (CERs), internationally tradeable offsets under the Kyoto Protocol's Clean Development Mechanism that can be used by governments or companies in rich nations to meet emissions reduction targets.

Europe is a major CER buyer because the offsets can be used in the EU's emissions trading scheme.

The CDM was worth $2.7 billion in 2009, less than half the $6.5 billion value the previous year as the global economic downturn slowed demand for the offsets and knocked prices.

Selling accelerated

"Selling has accelerated but there are still a lot of CERs floating in the market," said Pamposh Bhat, country director, India, for consultancy Perenia Carbon, which helps clean-energy project developers to create and sell CDM carbon credits.

"Indian sellers are willing to sell on the spot market, but the asking price is very high," she said.

India has 513 CDM projects registered by the United Nations, with total CER issuance for the country at nearly 80 million, well behind China's more than 200 million, UN data shows.

"I think the number has come down drastically," said Ashutosh Pandey, CEO of the carbon advisory business for project developer Emergent Ventures India, referring to the number of unsold CERs.

"Companies which were waiting to sell their CERs have seen the price performance of the past two to three years. And over the past year or so prices have stabilised," he said, adding that sales would continue.

CER futures traded on the European Climate Exchange <CEREZ0> hit a high of just over 24 euros in July 2008, plunged to 7.35 euros in early 2009 but have stabilised at around 12 to 13 euros over the past year.

Pandey said the number unsold had been between 40 to 50 percent of the total issued because of reluctance from small project owners to sell. But it was now 10-20 percent.

"Our estimate of issued, but not sold CERs in India, will be about 10 million," said P Ram Babu, CEO of General Carbon Advisory Services in Mumbai, told Reuters in an email interview.

Indian sellers are holding because they expect rising demand to lift prices.

A Reuters poll published last week found the average forecast price of EU emissions allowances in 2010, which typically trade two to three euros above CERs, is 16 euros. For 2011, it was 19.5 euros and 23.5 euros for 2012.

In a separate poll this month, analysts cut their CER supply forecasts to 2012 with the average 2012 price set at 18.7 euros.

"For the issued CERs market, the seller has the upper hand. So they are pretty OK. They are pretty confident saying that, 'look even if we don't sell today, we don't stand to lose, as this revenue isn't going to change our fortunes'," said Yuvaraj Dinesh Babu, CEO of the Carbon Rating Agency in Singapore.

Pandey said more buyers were opting for the spot market, even though many large buyers had entered into forward contracts.

But he said the actual volume delivered to date had been small because of delays in registering projects or verification of CERs by the CDM's governing board.

"So they are facing problems. They don't have enough volume to meet their own demand," he said.

First Published: Jun 22, 2010 14:58 IST