July 14, 2010 / 12:51 PM / 8 years ago

Kyoto 2012 deadline tests carbon investors

JAKARTA (Reuters) - Uncertainty over what will happen to the carbon market after the current round of the Kyoto Protocol ends in 2012 may lead some financiers to hold off on green projects in Southeast Asia, investors said on Wednesday.

Such investment is needed to shore up supply of carbon offsets for emissions trading schemes in Europe and other countries which have agreed carbon caps meant to slow climate change.

Singapore’s third largest lender United Overseas Bank is adopting a wait-and-see attitude before investing in projects that aim to earn carbon credits under the UN-backed clean development mechanism (CDM), its executive director said at a green investment conference in Jakarta.

“We are keeping our options open. We don’t need to rush in,” said Mark Yeo Wee Tiong, adding that UOB had not yet backed any CDM projects.

Carbon offsets are meant to ease the cost of meeting such caps, by supplementing domestic carbon cuts with reductions paid for overseas.

But while Europe’s trading scheme will continue beyond 2020, the international agreement that sets the framework for the world’s carbon credit market, the Kyoto Protocol, runs out in 2012. Global climate talks in Copenhagen last year failed to produce a new deal.

Frederic Crampe, managing director of ReEx Capital Asia — which arranges financing for green projects — told Reuters there was huge potential for CDM projects in Southeast Asia.

“But we are so close to 2012 that we are in a very bad period,” he said. “By the time you have built your project and got your approvals, 2012 is already here.”

POLICY UNCERTAINTY

China and India have been the biggest source of carbon offsets. Now investors are eyeing projects such as mini-hydro power, waste water and geothermal in Indonesia, but policy uncertainty and a lack of incentives are holding back deals.

However, Moe Moe Oo, managing director for Swedish carbon credit trader Tricorona AB — which sources financing for greenhouse gas reduction projects and trades the offsets — said it was business-as-usual for his firm.

“But because there’s no post-2012 agreement in place, those investors that might have invested a few years ago are not willing to take the risk,” he said, adding the 2012 uncertainty added an extra risk to green investments in countries with unpredictable regulatory regimes, like Indonesia.

Globally, the number of CDM projects entering the pipeline rose by 130 in June, the highest monthly increase since October 2008, according to the United Nations Environment Program.

A recent poll showed that nearly 70 percent of clean energy project developers in India believed there would be a post-2012 successor to the Kyoto protocol and the World Bank has said carbon markets would outlast the Kyoto Protocol.

Rahul Kar, a director at KPMG Singapore, said he thought the carbon credit market was actually quite bullish, adding that some market players may be “spreading rumors to drive down the prices.”

“But there is a strong signal of continuation in the market. The world doesn’t stop at 2012.”

Editing by Gerard Wynn and James Jukwey

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