So given the increasingly headline-grabbing effects of the Global Credit Crunch, what can we expect to observe from the perspective of producers, buyers and sellers of emission certificates?
The effects of the current Credit crisis on Carbon markets might perhaps counter-intuitively encourage increased market confidence. Despite some recent drops in the market price for both EUAs and CERs due in part to softening in the oil price, the long-term outlook for the industry may be insulated or even improved by the ‘Great Credit Crunch’.
As this article from CarbonPositive points out, there is a risk, though by no means peculiar only to our industry, of a general lack of continued investment in origination projects. It should be noted however that this will not affect carbon markets to any greater extent than any other market hungry for scarce investment dollars. This danger is present in any times of increased uncertainty or unusually high cost of capital, and importantly, forces a much more rigorous analysis by investment managers of the future demand for a projects expected outputs.
In this context I’m more persuaded by James Murray’s article here. The gist of his compelling argument is that carbon credits could prove a safe long-term bet for nervous investors. David Metcalfe of green business research firm Verdantix agrees. “Fundamentally, you have to ask if you are going to have customers [for carbon credits],” he observed. “The answer is yes. Why? Because they are legally obliged to buy those credits.”
We’ll have to wait and see, but despite the short term fallout from the Lehman’s of this world unraveling their portfolios this may turn out to have positive implications for investment in the sector in the medium to long term.
