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, 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.
"China is still the destination of choice for buyers of credits, who cite its large size, economies of scale in (project) origination, and its favourable investment climate," the report said.
To ensure price stability for project developers, the Chinese government has set a price floor of around nine euros on primary CERs.
The total value of the primary CDM market was $7.4 billion last year, up 28 percent from 2006.
Greenhouse gas emissions cuts, in carbon dioxide (CO2) equivalent, rose just 2.6 percent in 2007, said the report published on the sidelines of a carbon conference in Germany.
The secondary market, which encompasses all subsequent transactions following the primary sale, swelled by more than 11 times to $5.5 billion last year.
Secondary CERs closed at 16.78 euros a tonne on Tuesday, according to the Reuters CER Index.
For additional analysis on the carbon markets, go to http://www.reutersinteractive.com
