Poland revives AAU trade as private holders saddled with worthless units

Published 17:35 on August 28, 2015  /  Last updated at 23:36 on August 28, 2015  /  EMEA, International, Japan, Kyoto Mechanisms, New Zealand  /  No Comments

Poland’s government has approved an AAU sale to an unnamed buyer, teeing up the first publicly-known trade of the inter-governmental emission units for at least two years as the deadline to balance national Kyoto Protocol books approaches.

Poland’s government has approved an AAU sale to an unnamed buyer, teeing up the first publicly-known trade of the inter-governmental emission units for at least two years as the deadline to balance national Kyoto Protocol books approaches.

“We will issue the details after the contract will be signed,” a spokeswoman for Poland’s environment ministry said by email on Thursday, after confirming that the government had approved a trade of unspecified size.

No further details, including the price agreed, were available.

The deal comes as nations look to ‘true-up’ their emission unit levels for the 2008-2012 first commitment period of the Kyoto Protocol ahead of a Nov. 18 deadline.

Yet with most nations already comfortably in balance, analysts expect minimal governmental activity to add to the previous deals inked for at least 400 million units in total.

Over 100 million units had been held in registries by private entities up until the end of last year, UN records show, heightening a risk that investors could be left holding worthless units as the AAUs are automatically cancelled after the deadline.

GOVERNMENT DEALS

Poland has been the biggest AAU seller to date, according to a report by Austria’s Joanneum Research Institute.

It has sold 138 million AAUs to Spain, Japan, Ireland and the World Bank, which operated funds to procure the units on behalf of governments struggling to meet their Kyoto goals.

AAUs changed hands for as much as €14 each in 2008, but prices fell to below €1 by 2012 as the economic downturn helped cut emissions in potential buyer nations and developers issued vast numbers of UN offset credits.

“I don’t expect many more AAU trades. There could be some final tidying up, but why leave it to the last minute with today’s prices?” said Frank Melum, an analyst with Thomson Reuters Point Carbon.

He said Spain and Luxembourg might be the most likely buyers as EU data in 2013 suggested they had a Kyoto shortfall.

Under UN rules, governments can use AAUs or CER and ERU offsets to meet Kyoto targets, giving them some flexibility as to whether they cut emissions domestically or buy units from abroad.

Eastern European nations were the sellers, having a massive collective surplus of around 12 billion as their emissions collapsed in the 1990s after the fall of the Soviet Union.

AAUs were bought on condition that seller governments used the money to implement environmentally-friendly policies and measures under so-called Green Investment Schemes.

PRIVATE HOLDERS

While most Kyoto Protocol nations kept their AAU allocations, UN records suggest at least 110 million of the units were still held by private entities in national registry accounts at the end of last year, including 53 million in Russia, 48 million in the EU, and 11 million in Switzerland.

While Japan allowed its companies to use AAUs to meet domestic emission goals, making its firms keen buyers, UN records show just 0.2 million were left in private accounts by the end of 2014.

New Zealand’s government announced earlier this month it will ensure that private holders of cancelled AAUs generated in the country will get access to an equal amount of other permits in its domestic carbon market.

But it said any company still holding units originating in other nations will have those cancelled without compensation. Some 3 million of the units were held in private accounts in New Zealand’s registry at end-2014.

While AAUs have been virtually worthless for several years, as the final deadline approaches there could be a greater risk of unscrupulous sellers seeking to offload the units.

Carbon Pulse has learned of one seller offering several million AAUs in recent weeks, claiming that the government registry holding them was no longer able to properly cancel the units.

By Ben Garside – ben@carbon-pulse.com

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