Singapore: Activity on Asia’s first exchange geared towards trading Kyoto-related carbon emissions credits should pick up next year as the second phase of the pact goes into force, an exchange official said.
“It’s been a slow start, with most of the activity coming from Clean Development Mechanism (CDM) projects in India,” N. Yuvaraj Dinesh Babu, the carbon trading director with the Asia Carbon Exchange (ACX), said.
“There has been little activity from China as most parties prefer direct bilateral deals rather than unilateral ones involving the exchange,” he said.
However, Babu expects more activity from next year when the Kyoto Protocol enters its second phase, from 2008 to 2012, and is in talks to list carbon credit derivatives on stock exchanges in Singapore and India. He did not say when this might happen.
Since its launch in mid-2005, the Singapore-based ACX has traded about 2.4 million Certified Emission Reduction (CER) credits.
A CER is equivalent to one tonne a year of reduced carbon dioxide-equivalent greenhouse gas generated by an investment in a developing nation certified by the United Nations.
About 214 million CERs had traded in Europe and Japan through September last year, the official said. CERs on the exchange are currently trading at around €13-14 per tonne.
Activity was also curtailed by a meltdown in prices in Europe last year that saw many players banking their credits rather than trading them on the exchange and by the imminent expiry of Phase 1 of the Protocol by the end of this year.
Over-the-counter brokers pegged both December 2008 delivery and the December 2008-December 2012 CER strip at just over 80% of the value of European Union allowances (EUAs), which closed on the European Climate Exchange at €16.45 on Thursday.
Carbon-credit trading, under the Kyoto Protocol to reduce global emissions of greenhouse gases, operates under the principle where developed countries can buy credits and exceed pre-agreed caps on emission levels by investing in projects that cut emissions in developing nations.
The European Union’s allowance system emerged after the EU put in place binding caps on carbon emissions, while a global market inKyoto-linked CER credits generated as a result of UN-compliant clean-energy investment has been slower to emerge.
The credits are then traded in an open secondary market where polluting industrial owners can buy them to offset their emission levels or sell when prices move up.
Babu said ACX also plans to introduce trading in credits involving non-Kyoto signatories such as the US and Australia.
These credits are presently traded on the US Chicago Climate Exchange, where power companies have voluntarily banded together to buy carbon credits to offset their emissions. It traded about 5 million tonnes last year.