Isramart : Carbon traders demand Copenhagen CDM reforms

Isramart news:


Carbon traders, renewable energy companies and clean tech developers have responded angrily to a UN decision late last week to reject 10 proposed Chinese energy projects from qualifying for the Clean Development Mechanism (CDM) offset scheme.

The CDM Executive Board ruled that the projects would be built without the additional revenue they would have generated carbon offset credits and as a result they did not qualify the CDM and would not be permitted to issue official Certified Emission Reduction (CER) credits for sale.

The decision centres on reports that the CDM has created "perverse incentives " that have led to the Chinese government scaling back its own financial support for wind farm developers in order to ensure that projects still qualify for the CDM.

The move is likely to be welcomed by some green groups who have consistently accused the CDM of simply providing a financial wind fall to infrastructure projects in emerging economies that would have gone ahead regardless of the scheme.

However, the decision prompted an angry response from industry insiders, including the The Global Wind Energy Council (GWEC) and the International Emissions Trading Association (IETA) both of which accused the CDM's board of undermining the very projects it is meant to support.

Steve Sawyer, secretary general of GWEC, said that there was no solid evidence that the Chinese government had lowered feed in tariffs for wind energy developers in order to help wind energy projects qualify for the CDM. "This claim has never been substantiated," he said. "Since 2006, which marked the beginning of the wind power boom in China, tariffs for wind power have either remained stable or have in fact risen, as has been well documented in studies from GWEC and others."

He added that the decision risked jeopardising plans for new wind farms in China and other developing economies. “Carbon market support of wind power in China, India and a number of other countries has been one of the clear early successes of the CDM," he said. "While there are many criticisms to be made of Chinese policy, surely the fact that they are actively making use of the only means open to them to participate in the international climate regime is not one of them?”

Sawyer's complaints were echoed by Henry Derwent, president and chief executive of IETA who said that the project developers whose applications have been rejected were being penalised on the basis of speculation over domestic incentive schemes that were beyond their control.

"The CDM has been doing exactly what it was supposed to do: providing an extra push for the deployment of cleaner energy in developing countries and helping to kick start the transformation to a low carbon economy," he observed. "The project participants did their best to answer the questions asked of them- but how can one answer a concern that is not clearly formulated and based on a rule that does not exist? Project developers could not have possibly foreseen this issue whilst developing these projects."

The row follows the publication last week of a major new report from the IETA calling for urgent reforms to the CDM to be agreed as part of any deal finalised in Copenhagen this month.

The report, entitled State of the CDM 2009, warned that the $6.5bn a year CDM market was " buckling under the weight of its own success" and that urgent changes were required to ensure investors are not driven away.

In particular, it called for the body managing the CDM to be expanded, for project approval processes to be streamlined, and for the number of eligible projects to be extended to cover trials of carbon capture and storage technology.

"The CDM has driven billions of Euros of clean investment into the developing world and created an economic reason for reducing emissions in exactly the countries where it is needed most," said Derwent. "Yet the challenges facing the mechanism today threaten to bring this momentum to a halt. Investors and service providers are leaving the room just as demand promises to ramp up."

In related news, the CDM Executive Board ruled that the suspension imposed on UK-based CDM project verifier SGS UK should be lifted.

SGS UK was suspended from the scheme in September after spot checks revealed a number of irregularities in its processes for approving new emission reduction projects.

The UN panel concluded that the issues that led to the original suspension had been resolved, although according to Reuters reports it also revealed that it would now conduct spot checks on two more verifiers, TUV-Sud and TUV-Nord.