China mans the pump

July 19, 2013 Louisa Kiely

Michael  helps us understand some of the issues/solutions around the low price of credits

Colleagues,

Correcting more misunderstandings.

The price of carbon credits is too low because there are too many of them chasing buyers around the world. Excess supply of Certified Emissions Reduction (CER) units is the major reason for the low carbon price today, according to the Worldwatch Institute. “But not for long. China holds most of them and it needs a higher price and is doing something about it”.  China is especially hard hit as it dominates the Clean Development Mechanism (CDM) market with the largest investment of CDM projects in the world (US$220 billion, or 62% of total registered CDM projects). “Two hundred billion is a lot of motivation:  Buyers are demanding price renegotiation or even terminating their contracts.” More than US$6.44 billion worth of CDM projects in China face default.  But China is also an emerging carbon market. China’s domestic carbon market could absorb 600 million CER credits annually in the future, which should be enough to help initiate domestic emission trading. It will issue its own Chinese Certified Emission Reduction (CCER). Projects in China scheduled for CER could be transferred into CCER, thus reducing supply and helping to boost prices in the world market. At the same time, the EU Commission plans to increase its greenhouse gas emissions reduction target and retire some allowances permanently.  CERs are also expected to be accepted in more carbon markets in the future, including Australia.

More later!

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