Indian companies have decided to wait out the ongoing bearish phase in global carbon trading market.

Even as analysts peg the global carbon trading market at $100 billion by 2010, a steep fall in the price of carbon credits over the last five months is changing the way that countries like India look at the industry. From a commanding height of 30 euros in early 2006, the price of each credit has halved to 15-16 euros, prompting Indian companies (eligible for generating carbon credits) to hoard their supply.

According to experts like D.G. Prasad, economist with the Multi Commodity Exchange of India, it was the lack of a precedent that resulted in the initial high prices of carbon credits. “The only operational Emission Trading System opened carbon trading on the back of a perceived healthy demand by European countries. However, in reality, the EU countries had overestimated their requirement for carbon credits and could meet most of their targets internally. Hence the fall in prices,” he says, adding that a correction was inevitable given the infancy of the industry.

Thus, when the EU allowances were declared in April this year, most industrialised countries realised they had over-allocated their allowances. According to Pranab Nahar, director of Ecosecurities India, a leading player in the carbon market, the price of carbon was highly exaggerated due to speculative forces and hence a crash was imminent.

Another reason that prompted the crash was the limit that certain European countries imposed on the purchase of CERs. “While Germany has already put such a cap in place, a number of other European countries are slated to do the same, putting a downward pressure on the price,” feels Nahar. Besides, with credits fast flowing in from China, Russia and the East European countries, the supply of carbon is likely to outstrip demand at a much faster pace.

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