The Guardian: Russia's CO2 promise will kickstart carbon trade (ShellNews.net)
Friday October 1, 2004
The decision by the Russian government to ratify the Kyoto Treaty on climate change yesterday promises to kickstart a multibillion-dollar global emissions trading industry - based in London.
The price of CO2 in Europe rose 20% to nearly €10 (£7) per tonne on the back of the news from Moscow last night, and many industry experts predict further gains with massive new volumes changing hands.
More than 1m tonnes of carbon were traded in September - double the figure for all of 2003. Some are forecasting annual volumes will grow to 8m tonnes or even 10m tonnes by the end of 2004.
Experts predict that before long new dealing facilities will be developed that could replicate the commodities bourses such as the International Petroleum Exchange (IPE) and the London Metal Exchange.
There has been buying and selling of carbon for a number of years in London and other cities but in a low-key way.
It has been growing faster in recent months in anticipation of legally binding environmental legislation. The European Union has developed national allocations for greenhouse gas emissions but the Russian decision triggers the introduction of global international regulations from 2008.
Henrik Hasselknippe, senior analyst with emissions trading consultant Point Carbon, believes Russia alone could earn up to $10bn from selling quotas on the carbon market.
He estimates the financial value of the European carbon market will be worth €10bn (£6.9bn) a year by 2007.
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"This [the Russian decision] is the most important news we have heard for many years.
"It gives greater certainty to the [carbon] market and should really provide the kickstart we have been waiting for," he said.
Kate Hampton, manager of marketing and policy at London-based consultant Climate Change Capital, describes yesterday's decision as "hugely important" for emissions trading.
"We are now going to see the more reticent countries in Europe take a more robust line and it will activate a series of mechanisms such as the trading of permits between governments."
With the US refusing to ratify Kyoto, the treaty has needed a country as large as Russia to achieve the critical mass to become binding.
Russia accounts for 17% of total emissions from industrialised countries - 5.6% of global emissions - and brings the industrialised emissions covered by the treaty to 61.6%.
At present countries responsible for 65% of global emissions have signed up to the treaty leaving one major exception, the US, which accounts for 20% and is the world's largest single polluter. Russia has to stabilise its emissions at 1990 levels, but political instability and reduced industrial output has seen CO2 output dropping 30% over the last 14 years. This means Russia has vast volumes of quotas to sell into the global emissions market, said Mr Hasselknippe.
Leading energy companies such as BP, Shell and RWE in Germany, have been among the most active in the trading of permits to date. Last night BP described Russia's decision as "helpful".
Just as large financial institutions have started to play a big role in trading oil contracts on the IPE, so have they started to make an appearance trading emissions.
Like the oil markets, a network of specialist brokers is beginning to grow around the business with names such as Ecosecurities and Natsource.
The relative values of CO2 transactions are still minuscule compared with the oil markets but they are expected to grow from €96m worth of carbon trades globally last year to €360m for 2004.
Oil prices in recent years have fluctuated from $9 per barrel to $50, but no one can predict what will happen to carbon values. Climate Change Capital believes prices could drop from yesterday's level and bounce about depending on issues such as the relative prices of coal and gas, the influence of the weather on power production and general levels of economic development.
So emissions trading might be new, but market characteristics are likely to be familiar.