World Bank Blocks Recast of Trading Emissions Contracts

The World Bank declined requests by Trading Emissions Plc to renegotiate carbon credit-purchase agreements between the bank’s climate funds and emerging-nation suppliers, according to Simon Shaw, adviser to the company.

The bank’s stance is preventing Trading Emissions from recasting contracts that require the London investor in greenhouse gas reductions to buy so-called offset credits at prices that are about 53 percent above the current market levels, Shaw said. “So far, they’ve refused” to enter renegotiations, Shaw said today in a phone interview.

Trading Emissions said in March it has an outstanding bank guarantee to the World Bank for 20.8 million euros ($26 million) for industrial-gas emission credits it is obliged to buy through the bank-managed Umbrella Carbon Facility through 2014. Its average contracted price for future deliveries of credits is 6.29 euros a metric ton, compared with today’s December contract level of 4.12 euros.

More than a third of Trading Emissions’s suppliers of emissions credits in China are declining to renegotiate contracts, the company said today. Its shares have plunged 76 percent in the past year as United Nations credits dropped and the sovereign-debt crisis in the European Union curbed demand.

The company’s stock fell 0.6 percent today to 20.25 pence in London, valuing it at 51 million pounds ($79 million). It was 29 percent above its record low of 15.75 pence reached June 13.

“The valuation of a contract is fixed at the time of Emission Reduction Purchase Agreement signing,” said Isabel Hagbrink, a spokeswoman for the bank. “It is not the practice of the World Bank to renegotiate the price established in the ERPA when the market price fluctuates,” she said today in an e-mailed response to questions. December Certified Emission Reduction credits rose as high as 26 euros in 2008.

Declining to Change Terms

Sixteen of 44 project owners supplying Trading Emissions have so far declined to change the terms of ERPAs, while the developer of greenhouse-gas-cutting projects has successfully adjusted eight contracts, including in the categories of large hydropower and waste-heat recovery, the company said today in a statement distributed by the Regulatory News Service.

Under the new ERPAs, Trading Emissions will pay a percentage of the spot Certified Emission Reduction price on the date of delivery, rather than a fixed price, the company said.

Its disclosure fails to indicate the portion of credits in tons of carbon-dioxide equivalent that have been renegotiated, said Gus Hochschild, an analyst at Mirabaud Securities LLP in London. “It’s not very satisfactory,” he said. Trading Emissions’ credits may incur a loss of 15.6 million pounds, he said today in an e-mailed note.

World Bank Agreements

The contract talks aim to reduce losses, the company said.

The World Bank’s carbon-finance unit boosted the value of its funds’ ERPAs by 9.4 percent last year as it signed 23 new deals, even as prices plunged by more than two-thirds.

The value of its 160 agreements was $1.86 billion at the end of last year, according to the 2011 annual report. The value compared with $1.7 billion listed in the year-earlier report.

The volume of expected credits was 229 million tons of carbon dioxide equivalent, compared with 240 million in 2010, which included 32 million of so-called pipeline projects. Pipeline projects were not listed in the 2011 report.

“Unfortunately, we continue to see a low price on carbon, which is causing a domino effect on mitigation investments as well as overall climate-finance resources,” Joelle Chassard, manager of the carbon finance unit, said in the report.

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