Bloomberg News

Russia May Become Third-Biggest CO2 Offsets Supplier, CDC Says

October 31, 2011

Oct. 31 (Bloomberg) -- Russia may overtake Brazil to become the world’s third-biggest supplier of credits from projects that reduce greenhouse-gas emissions, with the new supply of offsets expected to weigh on prices, CDC Climat Research said.

Russian supply of Emission Reduction Units started to rise thanks to political support from President Dmitry Medvedev, who in June said Russia needed to take advantage of the United Nations’ offsetting mechanism, CDC said in a research note. The country may issue 142 million credits for the 2008-2012 period under the UN’s Kyoto Protocol, ranking third after China and India, according to CDC, a climate-protection unit of Caisse des Depots et Consignations, the French state-owned bank.

“This increase in ERU supply will likely put additional pressure on the price for Kyoto credits, as the largest carbon market, the EU Emissions Trading System, is already suffering from oversupply of allowances, while the post-2012 uncertainty regarding the international negotiations’ possible outcomes as well as the negative impacts of the Eurozone debt crisis are adding extra fuel to the fire,” CDC said on its website.

Emission Reduction Units, or ERUs, are issued under the UN’s Joint Implementation program, which encourages investments in low-carbon energy by industrialized countries in other nations that have emission-reduction goals under the climate- protection Kyoto Protocol.

More Liquid

The JI mechanism provides for conversion of Assigned Amount Units, which are allocated to governments under the Kyoto treaty and reflect the amount of carbon dioxide that a country is allowed to emit, into ERUs by implementing a project that cuts emissions. One AAU is a permit to issue one metric ton of CO2.

ERUs are more liquid than AAUs and can be traded on international carbon markets. Investors can use the permits earned by JI projects to comply with their own targets under the Kyoto Protocol. Companies can also use a number of ERUs as a cheaper way of compliance with their greenhouse gas limits under the EU emissions trading system.

UN offset credits also include Certified Emission Reductions, generated under the Clean Development Mechanism for investment in projects that cut greenhouse gases in developing countries. CERs for December 2012 dropped 0.9 percent to 7.04 euros a ton as of 9:50 a.m. in London on the ICE Futures Europe exchange, trading near a record low of 6.78 euros.

--Editors: Alessandro Vitelli, John Buckley.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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