The wait might get longer for Indian companies anticipating a rebound in carbon credit prices. A weak European economy coupled with an oversupply of carbon credits will keep carbon prices under check in the near term.
This is despite the outcome at Durban climate talks, where the 17th Conference of the Parties agreed for the second commitment period of Kyoto Protocol till 2017, thus providing some certainty to the UN-backed carbon trade.
“It is a positive development and the outcome of the Durban talks is more than anticipated. We expect more companies to invest in the clean development mechanism (CDM) projects,” said Dr G. Ram Babu, CEO, General Carbon Advisory Services Ltd.
“The markets will positively respond once this pessimism surrounding the European economy disappears,” he added.
Poor demand from the recession-hit European Union coupled with an oversupply of carbon credits from China and India had resulted in carbon prices touching as low as €5, an over 50 per cent fall since July. The CDM allows companies to set up environment friendly processes to trade into carbon credits.
“The extension of Kyoto Protocol for the second commitment period starting 2013 sounds better as it provides some certainty,” said Mr Ashutosh Pandey, CEO of Carbon Advisory Business at Emergent Ventures India. Mr Pandey said there needs to be more clarity on how the Durban outcome impacts at a micro-level.
The first commitment period of Kyoto Protocol, the global legally binding agreement for reducing emissions on which the current carbon market is based, will end in December 2012. Indian companies that have invested in earning carbon credits were looking for pointers from the Durban talks as the stand-off over future of Kyoto Protocol between the rich and developing countries had resulted in an uncertain future to the market-based mechanism.
India with 745 projects accounts for 20.63 per cent of the total 3,612 CDM projects registered with the UN Framework on Climate Change. Indian companies account for 16 per cent of the 78.10 crore carbon credits issued so far.
Striking an optimistic note, Dr Ram Babu said, “Once the targets of emission reduction announced at Copenhagen summit by various countries are taken into consideration, the demand for carbon credits will go up by about five times”.