But, analysts feel the Indian carbon market is mature enough to absorb risks.
Tremors of the euro zone crisis are being felt in the carbon trading market. Even as Indian players holding the carbon emission reduction (CER) certificates get jittery, analysts are hopeful that domestic companies will not be significantly hit in the long run.
The price of CER certificate on the Intercontinental Exchange (ICE) has halved from $18.52 a tonne in May-end to $9.21 this week.
This is a fallout of the lack of demand coupled with economic turmoil in the European market, a major buyer of the CER certificates.
According to analysts, Indian players may be hit marginally as most of them have been selling off CERs soon after they were allotted, at the prevailing market price.
CERs are a type of emissions unit (carbon credit) issued by the Clean Development Mechanism Executive Board for emission reductions under the rules of the Kyoto Protocol.
On November 3, CER prices on ICE touched their life-time low of $8.78 a tonne. Before the global financial crisis, in July 2008, prices had peaked to $ 41.72.
Barclays Capital’s commodity analyst Trevor Sikorski said, “Tightening credit markets in Europe, which increase the opportunity cost of holding carbon allowance inventories, has led to sell off. With the outlook for euro area industrial production remaining bearish, carbon market will remain a source of short-term revenue or finance.”
Earlier, several Indian companies generating carbon credit used to hold them and sell at an appropriate time. However, now that European market is passing through uncertainty, the selling pattern has changed.
The realisations of these companies have also come down as they had anticipated much higher values.
Dipankar Ghosh, partner, Ernst & Young (Climate Change and Sustainability Advisory Services), feels that the Indian market is mature enough to absorb the shocks.
“Indian carbon market has always been mature, and therefore international buyers are comfortable transacting in this market. There have been insignificant instances of contractual difficulties in carbon transactions from India projects. Indian projects are therefore expected to continue receiving reasonable attention from international buyers, even in the volatile carbon market setting.”
However, more than the falling prices, according to Jaldeep Sodhi, Executive Director, Avalon Consulting, “companies are already facing troubles in carrying on their businesses due to unfavourable conditions in domestic and international market and their problems have been further compounded by the uncertain future of Kyoto protocol.”
The first commitment period of Kyoto protocol is coming to end in 2012.
