Indian Kyoto project in greenhouse gas credits sale

LONDON, Aug 4 (Reuters) Indian chemical plant SRF's has put up for sale to European polluters of permits to emit 8 million tonnes of greenhouse gases, sources close to the deal say.

The sale may explain a recent price drop in European forward carbon prices, carbon traders said.

SRF , which produces the super greenhouse gas HFC 23, has offered the carbon credits for sale over the last two weeks, traders say, during which time European carbon prices for 2008 have dropped some 10 percent.

The Kyoto Protocol ties some 35 rich nations to greenhouse gas emissions targets between 2008-12, but allows them to meet part of these goals by investing in clean energy projects in developing countries, in exchange for pollution permits called carbon credits.

Such Kyoto credits are transferable into the European trading scheme, and some players fear an over-supply could crash European carbon prices, and so cut the incentive for European companies to pollute less.

''They've (SRF) been marketing for the best part of a couple of weeks,'' said one trader, who added at least part of the deal closed on Friday.

SRF has offered for sale 500,000 tonnes of carbon credits for immediate delivery, and a guaranteed further 1.5 million tonnes per year for delivery between 2008-12, bringing the total to 8 million tonnes, a second source said. The third source backed these details.

SRF manufactures refrigerant gases in in Jhiwana, Rajasthan, India and HFC 23 is a by-product in that process.

HFC 23 has nearly 12,000 times the global warming potential of carbon dioxide, making it a magnet for investors, as it yields much greater pollution cuts for much less effort compared to investment say in wind or solar power.

A rash of such sales of Kyoto credits -- or Certified Emission Reductions (CERs) -- may be fuelling a European carbon price drop said Louis Redshaw at Barclays Capital, who would not comment on the SRF deal.

''There's a lot of EUA (European carbon credit) sales and my assumption is that's on the back of CER sales. If you're sitting on a multi-million (euro) CER position you'd be paying attention if phase 2 EUAs dropped a few euros.'' European carbon credits for 2008 delivery dropped by 4 percent on the European Climate Exchange on Friday, to 17 euros by late afternoon compared to a previous close of 17.75.

REUTERS DKS GC2111