German eyes on carbon credits

A German bank is scouting the prospects of buying the carbon credits allocated as subsidies to climate-friendly projects in New Zealand.

Last year, Germany - in common with other European countries - devolved some of its Kyoto Protocol obligations down to the level of individual enterprises, nearly 2000 in all.

Mainly power stations and large industrial concerns, they now know how much carbon dioxide or other greenhouse gases they will be permitted to emit up to 2007.

Any excess above that will have to be covered by buying carbon credits, while bettering their targets will give them an excess to sell.

KfW, a Frankfurt-based banking group with a balance sheet roughly three times the size of the entire New Zealand banking sector, has set up a buyers' pool as a service to those enterprises.

It acts as an intermediary between them and potential sellers such as the recipients of 10 million credits allocated so far by the New Zealand Government to windfarms and other projects that will reduce local emissions.

Bernhard Zander, first vice-president of the KfW Carbon Fund, said yesterday: "The general perception is that the first period, up to 2007, will not be too difficult for the companies, but the limits may get tighter after that.

"The power companies especially have a long time horizon and will try to ensure they are not short of emission rights in the future.

"We are not so much dealing with traders with short-term positions but with corporate planners who don't want to be uncovered in the medium term."

Prices for project-based credits have been trading in the 4 to 6 ($7 to $11) range per tonne of carbon dioxide equivalent.

That is significantly less than the prices prevailing on the internal European emissions trading system, where prices have climbed in the past couple of months to about 17.

Zander said projects-based credits were discounted because they involved longer-term contracts and there were delivery risks.

Although KfW is Government-owned, it does not buy on behalf of the German Government. It is a private sector operation.

But it has to compete with Government programmes such as those run by the Netherlands and Austrian governments, representatives of which have come calling in the past year.

Also in the market is a large World Bank carbon fund, acting for private firms and governments, with a budget of US$750 million ($1.04 billion), largely from European countries.

"From a private sector point of view, you might ask if that is what was originally intended," Zander said.

"The original idea was to mobilise private-sector money."