Green business wary at climate deal delay prospect

Carbon traders and renewable energy investors had expected a delay for a final climate deal beyond a deadline next month but say a full agreement in 2010 is vital.

Leaders from rich countries including U.S. President Barack Obama said this weekend at the Asia-Pacific Economic Cooperation forum (APEC) in Singapore that agreement on a legally-binding climate deal was out of reach in at talks in Copenhagen.

Carbon markets are the most exposed economic sector to the outcome of the U.N. climate talks, which will set limits on greenhouse gases and thereby demand for emissions permits and carbon prices.

"We think a deal is unlikely by 31 December, so 2010 could be a tense year," said Mark Lewis, carbon analyst at Deutsche Bank.

Carbon traders on Monday were unfazed by the likely delay beyond December.

"It was widely anticipated and was priced in anyway" an emissions trader said.

Carbon traders and analysts want a full deal done in 2010 at the latest, and tough curbs on emissions agreed next month, to settle nerves on the future value of carbon permits.

The European Union is the $92 billion (55 billion pound) hub of carbon markets worldwide and ties some 11,000 industrial polluters to emissions limits. 

A new climate deal will help set carbon prices under the scheme because the EU has said it will drive tougher emissions curbs if there is an ambitious global deal - at a 30 percent cut by 2020 instead of 20 percent.

The second plank of the global carbon market is a $33 billion trade between rich and poor nations in carbon offsets, called the clean development mechanism (CDM). That more directly depends on a deal since its rules are set by the Kyoto Protocol which a new deal is meant to replace or extend from 2013.

"It's a bet, and when it's a bet investors have less capital to mobilise than when it's a sure thing" said Societe Generale analyst Emmanuel Fages, adding that some market in carbon offsets would continue regardless after 2012.

Meeting a 2010 deal deadline was vital.

"If anyone suggests it should go beyond 2010 that's just taking too much time" said Trevor Sikorski, carbon analyst at Barclays Capital.

CLEAN ENERGY

Developed countries say the complexity of a new global climate treaty coupled with the unlikely passage of a U.S. bill in time have defeated any prospect of agreeing a legally-binding deal next month, as previously hoped, and some developing nations are also coming round to that view.

Clean energy investors are less directly impacted by the outcome of Copenhagen, as their assets are buoyed by government subsidies for low-carbon energy such as wind and solar power.

Those support policies will be influenced by a final deal but a few months delay made little difference said Ian Simm, chief executive of Impax Asset Management Group PLC which has some 1.25 billion pounds assets under management. 

"It's quite important that there is a conclusive deal in the next 12 months because a huge amount of investment is backed up waiting for clarity on this area that will affect investment decisions across energy for a decade and beyond, so I think it is essential we get a deal by December 2010" Simm said.

Talks host Denmark on Monday proposed the end of 2010 as a new deadline for a binding treaty on greenhouse emissions, aiming for a binding political agreement on emission cuts and financing next month.