Fund to boost carbon credits prices

In a bid to revive the carbon credits market, a United Nations high-level panel commissioned to review the Clean Development Mechanism (CDM) has recommended establishing a new global fund to purchase and to cancel part of the oversupplied carbon credits.

If the recommendations of the panel set up in in November 2011 to assess the future of CDM are accepted, the fund could be created by December next year. The price of one carbon credit (each credit equals one tonne of carbon dioxide) fell from nearly €24 (Rs 1500) in 2008 to €24 (Rs 180) as on last Friday. The report was released on September 10.

Pointing out the major reason for the decline in the prices of carbon credits, the panel reported that mitigation targets are so low that they no longer create strong incentives for project developers in developing nations. Besides, many countries with mitigation targets are not using the CDM scheme to meet their targets. The lack of demand has resulted in excess credits from the CDM, which may be enough to meet expected levels of demand until at least 2020, even if no new projects are approved, said the report.
According to the report, the CDM market has declined 70 per cent in the past year alone and is projected to fall further. Till the realistic pricing in carbon credit markets is restored, the executive board of CDM should be careful in expanding the supply of carbon credits, it added.
Carbon market expert Ram Babu of General Carbon, a Mumbai-based carbon consultant, told DNA that decline in production and economic activity world over due to recession is a major reason for the sharp fall in prices of carbon credits. He said he is hopeful the market would recover soon as it has huge potential to generate revenue for green projects.