Traders in carbon credits saddled with vast stranded-asset pile

afr.com:

A number of major carbon traders are finding that offsets they bought may now be valueless.

Trafigura Group, the world’s largest trader of carbon-removal credits, has suspended a consignment as it awaits the results of a probe into the forestry project behind the units. The situation has led the company to replace the offsets in a contract with a corporate client and instead keep the stranded credits on its own books.

Hannah Hauman, global head of carbon trading at Trafigura — and a former oil trader — says the complete loss of value seen in some corners of the voluntary carbon market is unlike anything she’s witnessed in oil markets.

Oil traders “see distressed or off-spec cargoes,” but they “don’t see defunct assets,” she said.

Cut down trees in the Cordillera Azul National Park in Peru’s Amazon. The government sold forest carbon credits to oil companies. AP

It’s the latest in a string of cases in which traders handling carbon credits are having to treat such assets as stranded. Just over 75 million carbon credits currently lie dormant on the accounts of Vitol, the world’s largest independent commodity trader. And Dutch trader ACT Commodities Group and ACT Financial Solutions, which are both units of SMS Holding, last year wrote off about 1.5 million credits.

Since the first carbon credit was traded roughly 35 years ago, the market has been hit by a steady stream of scandals that have led to wild price swings and even collapsing valuations. That has implications not just for firms trading such credits, but also for companies that use them to underpin green claims to customers and regulators.

A carbon credit is a paper security representing one ton of CO2 reduced or removed from the atmosphere, generated by projects