Carbon traders bet on Bali climate talks' success

By Gerard Wynn

NUSA DUA, Indonesia (Reuters) - Traders are already betting on a new global climate deal to succeed the Kyoto Protocol, as talks in Bali on Friday inched towards a two-year negotiating agenda for an expanded global climate pact.

Financiers are buying rights to emit planet-warming greenhouses gases after present Kyoto commitments expire in 2012, hoping that countries will agree new, tougher emissions limits -- and drive demand for such permits.

"It's a great bet," said one trader attending the talks on the tropical Indonesian island. The new, more speculative offsets came at a substantial discount, the trader, who declined to be named, added.

The Kyoto Protocol allows 36 rich countries to meet limits from 2008-12 on their production of greenhouse gases by buying emissions rights from developing nations.

About 190 countries attending the December 3-14 meeting in Bali are edging towards launching negotiations on a successor deal to Kyoto, which is deemed too weak to win the battle against climate change.

Delegates were expected to draft on Saturday the first details of a negotiating agenda.

"You're seeing the hedge funds come in and say this is a great gamble," said Odin Knudsen, managing director of environmental products at JPMorgan Chase and former head of the World Bank's carbon finance unit, which pioneered carbon trading under Kyoto.

It's not just a new climate deal that bankers are betting on, said Knudsen, who highlighted the growing prospect of federal U.S. caps on greenhouse gas emissions, as well as continuing emissions limits for European companies after 2012.

A U.S. Senate committee voted 11-8 on Wednesday for legislation backing a federal U.S. cap-and-trade system, an early stage in passing a climate change bill.

"If the U.S. does approve cap and trade it won't be just for two years, it'll drive (trading in) credits after 2012," said Knudsen.

Specialist speculators EcoSecurities sets up emissions-cutting projects, earning emissions rights in return. These projects and the carbon offsets they generate theoretically extend into the future long after 2012.

In this way the company has developed a pipeline of nearly 100 million tons of these carbon offsets for delivery after 2012, guaranteeing to buy some -- although only at a lower price if there's no new global climate deal.

"It would be a remarkable political turnaround to have got this far and see the whole thing disappear," said EcoSecurities' founder Marc Stuart, referring to a global carbon market.

One banker put the price range for the more speculative offsets at 2 euros ($2.91) to 7 euros per metric ton of avoided carbon dioxide emissions, versus Kyoto prices of 10-18 euros.

(Reporting by Gerard Wynn; editing by David Fogarty)