Sunday, August 10, 2008

A greener way to trade

Carbon credits are emerging as a new market for developing Asian nations, reports Umesh Pandey in Singapore

As Asia starts to witness a rise in carbon trade, many markets are looking to start trading Certified Emission Reduction (CER) credits and Thailand is not being left behind.

Japan, Hong Kong, Singapore, India, China (both in Shanghai and Beijing) are all reported considering opening exchanges for trading carbon credits.

The Finance Minister Surapong Suebwonglee said he too wanted to see CERs traded in Thailand and would push for their introduction on the Stock Exchange of Thailand (SET). He said that having such a market would help the country mitigate the risk of climate change and also provide another option for investors.

Carbon trading is similar to the exchange of securities and commodities, under which carbon is given an economic value. A carbon credit allows the holder to emit a tonne of carbon dioxide. Credits are awarded to countries or groups that have brought their greenhouse gas emissions below their set quota.

For example, if a group plants trees to reduce emissions by one tonne, it will be awarded a credit that can be sold in the carbon trading market. Therefore, if a company wants to emit more pollutants, it would need to buy extra credit from this group to be able to do so.

According to research reports from Point Carbon, the global carbon trade was worth $61.85 billion in 2007, representing growth of 80% over the previous year. In terms of volume, 2.1 billion tonnes of carbon dioxide equivalent credits were traded, up 64% increase over 2006. Carbon trading is estimated to be worth $154.6 billion this year.

The global carbon market could be worth $3.1 trillion by 2020, says Point Carbon, if a greenhouse gas cap-and-trade scheme takes off in the United States, Climate Change Corp, a climate news service, reported late last month.

This has provided various countries with opportunities and Singapore aims to play a role as the region's top carbon trading hub, according to Kavita Gandhi, executive director of the Sustainable Energy Association of Singapore (SEAS).

She expressed confidence that Singaporean government initiatives, such as setting up a $20-million fund to promote and develop solar capability and technologies "can position Singapore as a meaningful clean energy hub".

To help promote the carbon trade in Asia, the third Carbon Forum Asia is scheduled to take place in Singapore on Nov 12 and 13 at Suntec International Convention & Exhibition Centre, with host of countries expected to attend.

Ms Gandhi said that with rising oil prices, increased consumer awareness of environmental issues and the certain threat of climate change, there was now an excellent case for sustainable energy to ensure that Asia travels onto a clean-technology development path.

But heading to that path is not that easy, as analysts warn that it may be too early for Asia to join the party unless the key economies in the region create local demand for credits.

There is a growing recognition of carbon as a soft commodity that can be traded, and in the form of other complex financial products, such as derivatives and exchange-traded funds.

Currently the largest share of the carbon credit trade in Asia is coming from countries such as China and India. Yuvaraj Dinesh Babu, director of Asia Carbon Global, says that a single project in China could dwarf the credits of other Asian markets, given the sheer size of the projects that the Chinese undertake.

"There are times when a single project in China can equal the entire size of the Indian carbon trade market," he said.

China accounts for 46% of current clean development mechanism (CDM) projects, against 36% for India and just 2% for Thailand.

Mr Babu says that by 2012 the CER market in Asia is expected to be dominated by Chinese firms with a 66% share, India with 19% and Thailand with just 1%. Many CDMs are likely to come from the renewal projects being undertaken by Chinese companies and the state.

His view is that Asia is going to dominate the future of carbon trade and places such as Hong Kong or Singapore have the highest potential to be trading hubs.

According to Henry Derwent, the CEO and president of the International Emissions Trading Association (IETA) the world will continue to see the domination of carbon trade by countries such as China. He estimates that 73% of the global CDMs in 2007 came from China, with the United Kingdom the single largest buyer with 59% of the CDM credits traded in that year.

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