Planet Ark : ANALYSIS - Kyoto 1 Billion Tonnes Pollution Cut Seen in Doubt


LONDON - The Kyoto pact's novel system for letting rich countries buy pollution cuts from poor ones is unlikely to achieve a UN forecast of axing more than 1 billion tonnes of greenhouse gases, some firms implementing the scheme say.
They downplay the fears of some analysts that the system will so far exceed this forecast in 2008-12 that the carbon credits will become too abundant and their price will collapse.
"My guess is only 30 to 50 percent of that (1 billion) will ever see the light of day," said Bill Haskell, chief executive of AgCert, which expects to generate some 50 million tonnes of carbon credits a year by 2012, alongside a joint venture with US utility AES Corp..
But supply and demand is so untested that some of the Western project development firms, which advise companies in developing countries on how to save energy and sell credits under the scheme, feel they cannot altogether rule out a glut.
Kyoto obliges some 35 rich countries to make an overall cut in greenhouse gas emissions between 2008-12, as a first step towards curbing the worst effects of climate change.
It allows states that are behind in cutting their own pollution to compensate by investing in clean energy projects in poor countries and thereby acquire the carbon credits they need.
The one billion tonnes estimate is the UN's forecast of pollution cuts through 2012 from a pipeline of projects under Kyoto's Clean Development Mechanism (CDM), most of which have not yet cleared UN approval procedures.
Tom Stoner, chief executive of project developers Econergy, agreed that future credit estimates should be treated with caution while Seb Walhain, director of environmental markets at Fortis Bank considered 500-600 million tonnes more realistic.
Oversupply is seen by some as a possibility, partly because projects develop carbon credits by cutting pollution against a base scenario. The more they produce of their core product, such as cement or power, the more credits they generate.
"There's always a potential for over-supply... we're not losing sleep over that yet," said Jack MacDonald, chief financial officer at EcoSecurities.
EcoSecurities itself is aiming to generate 500 million tonnes of credits by end-2012, while it would be "comfortable" with some 270 million tonnes-plus, MacDonald said.
BOOM
Future demand is also opaque. It is booming now as banks, hedge funds and others stock-pile credits for future trade, project developers say.
But long-term demand depends on variables such as how far developed countries will pollute and fall behind their Kyoto goals. These are influenced by factors that are hard to predict, ranging from economic growth through oil prices to the weather.
"It's very difficult for us to predict demand, there are so many inter-linking factors," said Tristan Fischer, chief executive of Camco International, which currently has projects to generate some 100 million tonnes in credits through 2012.
Demand also depends on political will. The European Union set its emissions caps too generously last year, for fear of harming the competitiveness of its firms, resulting in a drop in prices under its own internal carbon trading scheme.
Meanwhile Canada has said it will miss its Kyoto target and the United States, the world's biggest polluter, pulled out.
But sellers of carbon credits said demand in those countries was likely to be spurred by public support for "green" issues and by proposed carbon markets.
"I'm not losing a massive amount of sleep (over the EU), we've got business in North America," said Haskell.
But carbon prices in the prospective market in the US north-east states could be no more than US$2 - $7 a tonne, said Abyd Karmali, senior vice-president at ICF Consulting. This compares to current CDM prices seen in a 12 to 17 euros (US$15.2-$21.6) range.
Karmali also expected low CDM prices, which he saw potentially swamped by Russia off-loading hundreds of millions of tonnes of so-called "hot air" -- a huge surplus of emissions cuts it has because of its post-communist industrial collapse.
But even if there were a carbon price crash, sellers see profits in the system.
"CDM will still function at 10 euros from a cost perspective," said Econergy's Stoner. "(But) We absolutely see the potential for prices that are better than that."
AgCert's Haskell saw CER prices as low as 5 euros still yielding a margin, as did EcoSecurities' MacDonald.
Story by Gerard Wynn