Enel buys $232 mln carbon credits from Wuhan Steel

BEIJING, May 5 (Reuters) - Italian power company Enel SpA (ENEI.MI: Quote, Profile, Research) signed a deal to source $232 million of carbon credits from the parent of China's Wuhan Iron and Steel (600005.SS: Quote, Profile, Research), and to cooperate on clean coal and carbon capture projects in China.

The credits have a market value of about 150 million euros ($232 million), said Enel Chief Executive Fulvio Conti on Monday.

Projects to improve Wuhan Iron and Steel Group's energy efficiency and reduce emissions will allow Enel to acquire 11.45 million tonnes of carbon credits by 2012.

Under the Kyoto Protocol's Clean Development Mechanism (CDM), companies or governments in rich nations can fund emissions-cutting projects in developing countries to get carbon credits to offset their own pollution or to sell to others.

Enel is the biggest single buyer of carbon credits in China and is Italy's largest utility.

Sourcing credits from China gives Enel "best value for money," Conti said, adding that excess credits could be traded on Europe's carbon market.

The credits were sourced at a value close to China's unofficial minimum price of 8 euros a tonne, an Enel official said. Credits must be approved by the Chinese government and the United Nations before they can be traded.

Enel, which is developing a pilot clean coal power plant near Rome with 45 percent energy efficiency, will also cooperate with China's Ministry of Science and Technology and Italy's Ministry of Environment on projects to reduce emissions and capture and store carbon dioxide.

But Conti acknowledged the difficulty of scaling up such technologies, as well as the cost to operate, could add to the difficulty of implementing such technology in China where rising coal prices and price controls mean many plants operate at a loss.