Buyers default on carbon credits

February 9th, 201211:26 am @


BEIJING – European companies have thrown a large number of Chinese emissions reduction projects into doubt by refusing to pay the pre-agreed price following a market plunge, industry insiders said.

About half of the Chinese Carbon Development Mechanism (CDM) projects are being renegotiated or terminated, according to estimates. No official figures are available.

China is the world’s biggest carbon credit supplier. EU companies agreed to buy most of the credits to help them meet caps under the EU emissions trading scheme.

Industrialized countries can buy carbon credits from developing countries under the United Nations Carbon Development Mechanism. The carbon credits help developed nations meet their own emissions targets.

The UN, by Jan 9, issued 484 million carbon credits to Chinese CDM projects. Most involve hydro and wind power projects.

However, the international market in carbon credits has plunged in recent months, and defaults by European firms have surged, said Tang Renhu, general manager of Sino Carbon Innovation and Investment Co.

Many projects are being renegotiated, he said.

“Buyers and sellers were in the same boat when the carbon market was up”, but the declining market has changed that, Tang said.

Risks facing Chinese sellers grew as the price of carbon credits fell from 25 euros ($33) a few years ago to record lows of around 4 euros.

The average agreed price was around 10 euros, industry insiders said.

“The buyers are looking for loopholes and are trying to terminate or renegotiate agreements,” said an executive of a State-owned CDM developer under condition of anonymity.

A CDM consulting company has about 30 projects in its portfolio and about half are being renegotiated, a company source said.

“Obviously buyers want to renegotiate the prices to help them offset the downside risks in the carbon market,” said another developer, who declined to be named.

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