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The increased pace of carbon credits flowing from a United Nations-overseen market will be maintained as European Union officials seek improvements to the biggest program for emission offset credits, a senior UN regulator said.
The EU allows some UN offsets to be traded in its own carbon trading system, which is the world’s largest. Some European regulators have a “too-dark” view of the performance of the UN Clean Development Mechanism, said Pedro Martins Barata, a Portuguese member of the CDM executive board and a candidate for the chairman’s job in February.
The number of offsets issued by the CDM reached a monthly record of 24.8 million metric tons in November, nine times higher than in July, and will probably almost match that this month, according to an estimate from Bloomberg New Energy Finance, the London carbon-market research company.
“We’re seeing rejection rates, review rates, especially for issuance, much, much lower than we were seeing before,” Barata said this week in phone interviews. “We are catching up with the backlog of projects already and finally seem to be managing it rather well.”
EU allowances for December 2011 fell as low as 14 euros ($18.39) a ton on Dec. 20, the lowest since July 28, as UN issuance boosted supply of credits. They’ve risen 8.8 percent this year and were at 14.31 euros as of 9:27 a.m. today. Certified Emission Reduction credits from the CDM for 2011 were at 11.50 euros, from 11.36 euros yesterday. CERs, which are tradable offset credits, are created for investors when they reduce emissions in developing countries through projects such as wind farms.
Clearing the Backlog
During the past two months, the UN assigned more staff to process requests for carbon credits to clear a backlog that stood at 312 projects as of Oct. 22. The board wants to cut it to 62 by Jan. 1, according to a Nov. 25 estimate. “We’re now down to a one-month delay,” Barata said yesterday. “I’m confident we can keep the pace.”
With new procedures at the CDM, “a lot of pessimism about the rejection rate and the review rate” for credits over the past year and a half will “go away, fairly soon,” Barata said.
It is possible the program may issue a record 30 million tons of credits next month, IDEAcarbon, the London-based company that rates emission-cutting projects, said yesterday in a research report.
The International Emissions Trading Association, which represents carbon traders and investors in greenhouse-reduction projects, urged EU officials earlier this month at a UN-led climate conference in Cancun, Mexico, to better protect those putting up the money for carbon trading.
EU’s View
The EU “lost sight” of the importance of keeping investment going in emission-cutting projects, Henry Derwent, president of the Geneva lobby group and a climate negotiator for former U.K. Prime Minister Tony Blair, said last week by phone.
The EU wasn’t seeking to block CDM reform on a proposed appeals process, improved communication between regulators and investors and new project-crediting systems, according to a statement distributed Dec. 8 by Elisabeth Lannoo, a European Commission communications officer attending the Cancun talks.
Barata, who is a climate negotiator for Portugal in addition to his UN post, also defended the EU’s stance.
“Whereas I might have a too-rosy picture on what the CDM executive board has been doing over the last few years, they have a too-dark picture,” Barata said of the EU’s position. “To say they are hampering CDM reform? No. Absolutely not.”
Appeals Process
Important legal questions need to be addressed before the CDM installs a regulatory-decision-appeals process, said Barata. The process has been sought by investors for at least three years. Rulemakers need to narrow down about five options for governance of the appeals system and decide what type of claims the process will cover, he said.
Now is not the time to divert the limited resources in the CDM away from project registrations and offset issuance to a proposed “help desk” that would improve communication between regulators and investors, Barata said.
While the commission probably isn’t seeking to curb supply of United Nations offsets, it’s clear “the commission does not like CDM very much,” he said.
‘Work for Users’
The EU needs to better understand the importance of keeping investors onside, said IETA’s Derwent. “We didn’t think they understood the importance of making the system work for users,” he said last week in a phone interview. “If people get put off the carbon market today, they won’t be part of the expanded carbon market tomorrow.”
After a few more months, the board may be able to place more trust in the audit firms that verify emission reductions, easing issuance approvals, Barata said. “We could introduce this less thorough review for every single case.”
There’s still a risk the executive board gets distracted, which might cut its ability to oversee registration and issuance requests, he said.
CDM Watch, the Bonn-based environmental lobby group, wants the board to review every methodology that projects must comply with in order to get credits. “The aim is to have a fundamental overhaul,” Eva Filzmoser, CDM Watch’s program director, said in a Cancun interview.
Clifford Mahlung of Jamaica, the CDM’s current head, is due to step down in February at the end of his one-year term. The position rotates between developed and emerging nations each year.
To contact the reporter on this story: Mathew Carr in London at [email protected]
To contact the editor responsible for this story: Stephen Voss at [email protected]