Emission Credit Trading*

December 5, 2003

WORLD NEWS

Emissions Credits

See Brisk Trading

Tied to Kyoto Pact

By JOHN J. FIALKA

Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- Anticipating the ratification of the Kyoto Protocol to curb global warming, traders this year have doubled the amount of global emissions credits swapping, according to the World Bank.

The sharp increase, from 29 million tons of carbon dioxide equivalents in 2002 to 71 million tons during 2003, was led by Japanese companies whose buying quadrupled last year, the report says. The main sellers of emission credits were Latin American countries, where removing methane gas from garbage landfills proved to be one of the cheapest ways to reduce so-called greenhouse gases.

The Kyoto treaty, which has yet to be ratified and faces continued resistance from Russia, allows trading in emissions credits for six industrially produced gases thought to be artificially raising the planet's average temperature. According to companies involved, the gases most frequently traded are carbon dioxide and methane. Methane is believed to be 20 times more potent in causing climate change as CO2. All trading is conducted in equivalent tons of CO2.

Brokers are uncertain how high trading prices will go because new demand might be offset by Russia, which could sell billions of dollars of emissions credits if it decides to ratify Kyoto. "We've seen quite a few companies willing to take a lot of risks in exchange for very low prices," said Benedikt von Butler, a trading director for Evolution Markets LLC, a White Plains, N.Y., brokerage firm.

Under the Kyoto treaty and a similar trading plan the European Union plans to start in 2005, utilities and large manufacturers would be assigned emission allowances or "caps" on their output of greenhouse gases. If their reductions are lower than the caps, they will have credits to sell. If their emissions remain above the caps, they will have to buy emissions credits to get under the cap.

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