China dominates, Africa emerges, in carbon market

By Michael Szabo

COLOGNE (Reuters) - For a third year running China was the dominant source of greenhouse gas emissions cuts under a U.N.-run offsetting scheme and Africa started to emerge as a viable market in 2007, the World Bank said on Wednesday.

China accounted for 73 percent of deals under the Kyoto Protocol's Clean Development Mechanism (CDM) in 2007 while Africa, which has largely been absent in the carbon trade made up some 5 percent of offest sales last year.

The $13 billion CDM market allows rich nations to invest in clean energy projects in developing countries and in return receive offsets called CERs which they can use to meet emissions limits under the Kyoto Protocol.

"Countries in Africa ... emerged in the carbon market and offered buyers an opportunity to diversify their China-overweight portfolios," the World Bank report said, citing Kenya, Uganda and Nigeria as the main movers in 2007.

Some 140 million tonnes of CERs have been issued by the U.N. since 2005, with the lion's share going to projects in China and India, both receiving around 30 percent of the total each.

Most CER recipients in China sold on their credits before receiving them, in the so-called primary market, whereas sellers in India preferred to seek higher prices by holding on to CERs until these were officially produced or issued, the report said.

As a result of offering reduced delivery risk, sellers in India expected spot prices ranging between 15 euro and 16.50 euros ($23.20-$25.60), the report said.

Primary CER prices in China ranged between 8 euro and 11 euros in 2007, though the report's authors noted prices edged up above 13 euro in early 2008.