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Low-hassle factor helps China dominate carbon credit market

Low-hassle factor helps China dominate carbon credit market
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First Published: Tue, May 13 2008. 12 28 AM IST

According to a report on the state and trends of  the carbon market, buyers are pleased with their experience of generally good-faith negotiations with counter-parties in China (Photo by: Lucas Schifr
According to a report on the state and trends of the carbon market, buyers are pleased with their experience of generally good-faith negotiations with counter-parties in China (Photo by: Lucas Schifr
New Delhi: Citing what they term a higher “hassle factor”, buyers of carbon credits are moving away from the Indian market and heading towards China, which continues to dominate the global market for these, says a World Bank report.
“Buyers reported a low ‘hassle factor’ of engaging in carbon business in China, and stated that they were pleased with their experience of generally good-faith negotiations with counter-parties and the ability of sellers to conclude contracts in a reasonable timeframe,” said the report titled State and Trends of the Carbon Market 2008.
According to a report on the state and trends of the carbon market, buyers are pleased with their experience of generally good-faith negotiations with counter-parties in China (Photo by: Lucas Schifres / Bloomberg)
Carbon credits—these are issued under the Clean Development Mechanism (CDM) of the United Nations for projects that do not generate greenhouse gases—are carbon emission reductions (CERs) purchased by polluting industries in developed countries from developing countries so as to reduce their carbon emissions to a certain level.
According to the World Bank, China is the biggest seller of carbon credits and it has expanded its market share of CDM transactions to 73% in 2007 (54% in 2006), compared with Brazil and India (6% each). Both Brazil and India saw a decline in volumes of their carbon market transactions in 2007.
In terms of the number of projects in the pipeline too, India and Brazil have a relatively low market share of transactions.
Market participants repeatedly cited high price expectations in these two countries, and reported that “project sponsors focused on transacting issued CERs at attractive prices in the range of €15-16.50 instead of selling (riskier and therefore less remunerative) forward CER streams”.
Some experts, however, argue that there are no dearth of buyers. “We see more buyers coming to India, because most portfolios are China heavy and to diversify, they want Indian projects as well,” said Ashutosh Pandey of Emergent Ventures India Ltd, a consulting firm that works in the CDM area.
Besides, he said, “we wouldn’t call it a hassle. Indian sellers are more informed and know the market and CER pricing well. There is no reason why we should sell at a discount. Also, the party that holds the Emissions Reduction Purchase Agreement in China is the government, whereas in India, it is a different private party for each agreement, which means that it can take more time”.
The report added: “Countries in Africa (5% of transactions in 2007) and Eastern Europe and Central Asia (1%) emerged in the carbon market and offered buyers an opportunity to diversify their China-overweight portfolios.”
Although India scores higher on getting more small-scale carbon reduction projects at the ground level, the report said that China is still the destination of choice for buyers of credits.
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First Published: Tue, May 13 2008. 12 28 AM IST