Japanese Companies Free to Swap Emission Credits, Official Says

Source - Bloomberg News

June 3 (Bloomberg) -- Japanese emitters are free to swap Certified Emission Reduction credits for cheaper Assigned Amount Units as the earthquake-stricken country meets mounting costs for complying with the 1997 Kyoto Protocol, an official said.

CER credits traded for 12.75 euros ($18.47) a metric ton today on the ICE Futures Europe exchange in London, having gained 12 percent in the year to date. Orbeo, the Paris emissions venture of Rhodia SA and Societe Generale SA, assumed a price of 5 euros a ton for AAUs in March.

There’s nothing to stop Japanese companies selling CERs they’ve already bought and buying AAUs, said Toshiaki Nagata, a deputy director in the Kyoto Protocol office of the Ministry of Economy, Trade and Industry. “It could be a viable thing to do in terms of cost efficiency,” he said in an interview yesterday at Carbon Expo in Barcelona.

Japan needs 300 million tons of credits in the five years to 2012, including 200 million being bought by its private sector, according to a World Bank report published June 1. The quake may add 74 million tons of carbon dioxide equivalent as the country is forced to replace power from atomic reactors with thermal generation, Orbeo estimated in March.

There are 10 billion tons of spare AAUs, with half owned by Russia and a quarter by Ukraine. That’s much more than total demand of about 1.4 billion tons in the five years to 2012, when Kyoto targets expire, the World Bank said. It’s unclear what value AAUs will have in future because nations can’t agree to a successor to Kyoto.

Weaker Market

Sales of the spare units could hurt the European Union carbon price because emitters in that program can also use CERs for compliance, a senior European climate official said yesterday. The EU program is the world’s biggest greenhouse gas market.

Peter Zapfel, head of policy co-ordination in the European Commission’s climate unit, told delegates at the conference the price may be hurt should a nation with spare AAUs sell, for example, 500 million tons. “There’s a very clear channel, relationship, between how many AAUs are put on the market and how in the end at some stage it could affect the European carbon price and it definitely won’t strengthen it.”

Zapfel said he wasn’t implying that a nation or nations with surplus units would make such large sales. Nagata said the Japanese government isn’t preparing to swap its own supply of CERs for the cheaper allowances. “It’s not our plan,” he said.

It would cost Japan 370 million euros to buy AAUs to cover emissions created as a consequence of the March 11 earthquake and tsunami, assuming the country has to pay 5 euros for every AAU, Emmanuel Fages, an analyst at Orbeo, said in March.

Under the Kyoto treaty, developed nations agreed to limits on emissions and received so-called AAUs up to that amount. The extra costs for Japan would be “a significant drain on a budget already strained,” Fages said.