Carbon trading opportunity for local firms

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LOCAL FIRMS should continue to invest in eco-friendly projects that can earn tradeable carbon credits as prices for these are likely to rise and foreign buyers are especially keen to source from the Philippines, experts said at a forum on Friday.

Demand for carbon emission reductions (CERs) is expected to spike as the US is likely to sign on to the global carbon trading agreement designed to address climate change, speakers representing a delegation of UK-based consultancies said.

The Philippines, they added, is seen as an attractive CER source as it is deemed a non-risky host and there is relatively more local credit available to finance Clean Development Mechanism projects, they added

Under the mechanism run by a United Nations agency, emission-reduction projects in developing countries are granted CERs, each equal to one ton of carbon dioxide. These credits are then sold to buyers in industrialized countries who need to meet reduction targets committed to under the Kyoto Protocol.

So far, only two of the 35 Philippine-based projects registered with the UN Framework Convention on Climate Change are earning carbon credits, data from the agency’s website show. These are the North Wind Bangui Bay Project and a biomass facility in Quezon City.

Michael Conn, BNP Paribas UK Holdings Ltd. commodity derivatives director, said more Philippine firms should cash in on the mechanism as prices for carbon credits are likely to spike in the near future.

Mr. Conn was joined by other delegates of a UK business mission that sought to forge business ties with Philippine firms.

The US, which currently does not participate in carbon trading, is showing great interest in a new climate deal expected to be forged this year, Mr. Conn said. This agreement will replace the older protocol which expires in 2012.

The US’ entry into the mechanism, he said, may rescue CER prices from a downturn-induced dip. Prices had fallen as industries cut back on production, making it easier for countries to comply with emission reduction goals, Mr. Conn explained.

“Nothing is immune to a recession. That includes the value of carbon. There is a perceived excess supply relative to demand because there is a drop in emissions. But [the market] is still growing and growing quite well. Value may have [dipped] but [trading] volume has increased,” he said at the forum.

“What happens with the US will have an impact on the valuation of CERs. The US is showing interest in that,” Mr. Conn said.

“If the US comes on board, there can be a massive perception that there is a shortage in CERs.”

Agrinergy Ltd. project analyst Rakshya Thapa said CERs generated by Philippine-based projects are sure to find buyers.

“The Philippines is not a risky [source for CERs]. It is one of the most sought after. Buyers want to diversify. The Philippines has a good chance,” Ms. Thapa said.

A purchase agreement, she said, poses risks for a buyer based on the quality of the project and the characteristics of the host country. A country’s risk rating depends on “the political situation and how experienced the designated national authority is in handling and approving projects”, she told BusinessWorld at the sidelines of the forum.

The availability of credit to finance CER-generation projects has also made the Philippines an attractive source, UK Climate Change Projects Office adviser Tom Bouwens said.

“That’s the reason why UK is pinning our hopes on [the Philippines],” Mr. Bouwens said at the forum.

Edgar R. Bancod, head of research at ATR-Kim Eng Securities, Inc. confirmed this, saying in the open forum portion: “There is a lot available from local banks. Credit is getting tighter but it is doable. We’ve been doing a lot of project finance already.”

Mr. Bouwens went on to highlight the importance of emission reduction projects not just to a firm’s bottom line but also to the environment.

“Scientists are warning us about climate change and we can’t afford to ignore these lessons especially in Southeast Asia where effects will be felt more,” he added.

Philippine-based projects have earned 95,428 CERs, which accounts for only .03% of the global total according to United Nations data. Neighbors Vietnam, Thailand, Malaysia and Indonesia account for larger shares ranging from 0.12% to 1.45%.