* Govt-level Kyoto CO2 rights market well despite recession
* Buyers Austria and Japan actively pursuing deals
* Ukraine, Romania, Czech may sell rights despite price drop
* Sources say Japanese want proceeds invested in own firms
By Michael Szabo
LONDON, March 2 (Reuters) - The market for government-level
emissions rights under the Kyoto Protocol is alive and well,
mostly unfazed by the global economic downturn.
Through the most opaque of the emissions trading schemes
under the Kyoto climate change pact, nations comfortably below
greenhouse gas targets can sell excess emissions rights to other
countries in the form of credits called Assigned Amount Units
(AAUs).
Critics call them "hot air", arguing that most were
generated through restructuring in eastern Europe in the 1990s,
when polluting industries in ex-communist countries were
shutting anyway, rather than by new investment in clean energy.
Countries such as Austria and Japan are still hunting for
these cheap AAU credits, despite the criticisms and the fact
that United Nations clean energy project-based offsets, seen as
having more environmental integrity, have also fallen in price.
"We started before the recession and we continue to
negotiate with potential AAU sellers," said Sascha Eichberger of
Kommunalkredit, which manages Austria's CO2 credit purchasing.
He said Austria plans to buy 5-10 million AAUs by 2012 but
added that the dropping AAU price has prompted some countries to
rethink sales. "The current price development is not what
sellers expect to get for AAUs," he said.
The Czech Republic said earlier this month that it had again
postponed an auction for 10 million AAUs as it needed to re-draw
its sale strategy due to the drop in prices. []
One broker told Reuters in January he had heard of AAU
negotiations for as low as 3-5 euros a tonne ($3.81-$6.36), or
around half the value of the largest deals signed in 2008.
December AAU deals between seller Poland and buyers Ireland
and the World Bank were reportedly done at around 10 euros a
tonne, although no parties will confirm this. []
Governments remain extremely guarded over AAU prices,
despite the fact that the rights are bought with taxpayer money.
Eichberger would not comment on prices but said Austria is
in talks with the Czech Republic, Poland, Latvia and Hungary.
A Romanian government official told Reuters he expects
Romania to sell 10 million AAUs in the first half of 2009, but
also would not comment on current talks or their asking price.
Buyers insist that AAU deals are "greened", meaning their
proceeds are earmarked for investment in clean energy or energy
efficiency.
Eichberger said Austria had no plans to speak with countries
lacking clear greening plans. "Russian and Ukrainian markets at
the moment are not interesting for us," he said.
Hungary, which has already sold AAUs to Spain and Belgium,
said it may now use revenues to ease its national budget
deficit, analysts Point Carbon reported on Tuesday.
JAPANESE BUYERS SCOUR MARKET
AAU sellers report that Japanese buyers are scouring the
market, approaching most governments that hold surplus AAUs.
"The Japanese are everywhere, and AAU sellers are talking
not just to the Japanese government, but to Japanese companies
too," said the broker.
While AAUs are not valid in most carbon trading schemes,
Japanese companies can buy AAUs to meet voluntary emissions
targets or sell them for profit to the Japanese government once
an agreement is reached between Japan and the selling country.
In early February, Ukrainian Prime Minister Yulia Tymoshenko
met with representatives from Japanese companies including
Sumitomo <8053.T>, Marubeni <8002.T>, Mitsubishi <8058.T> and
Mitsui <8031.T>, Ukrainian consultants said.
"According to Tymoshenko, Ukraine has ... signed the first
(AAU) agreements with public corporations in Japan," the
Environmental (Green) Investments Fund, a climate change
strategy consultant, said on its website on Feb. 12.
On Feb. 16, a source close to the talks said Japan was close
to reaching a deal for at least 30 million AAUs with Ukraine
[].
Two sources close to the talks said Japanese representatives
are requesting proceeds be invested in projects to be built by
Japanese companies.
"One government might say 'we're only going to buy AAUs if
you can prove they're greened', whereas the Japanese are asking
the seller to invest the money in a project developed by a
Japanese company," one source said.
A Japanese source close to the Ukraine talks on Thursday
declined to comment on this, but said "the greening process is
among issues under negotiations, and it is not fixed, yet."
Japan's environment ministry said it will buy around 100
million tonnes in offsets by 2012, including those issued to
U.N.-approved clean energy projects under another Kyoto scheme.
PROJECT-BASED OFFSETS FAVOURED
Critics argue that increased scrutiny surrounding the
environmental integrity of the projects, built in countries like
China and India, makes project-based offsets, called Certified
Emissions Reductions (CERs), a better alternative than AAUs.
The option for governments to use either CERs or AAUs to
meet Kyoto targets has caused a correlation in their prices.
Cheap CER prices, concerns over the integrity of AAUs and
the lack of accountability and transparency over where proceeds
are spent may see governments opt to buy CERs over AAUs.
But the economic downturn may see an erosion in rich
nations' emissions and their subsequent emission offset demand.
*For an accompanying FACTBOX on AAU market players, click
on []
(Additional reporting by Risa Maeda in Tokyo; Editing by
Anthony Barker)
