Some Chinese carbon projects to exit UN offset market if allowed

Some developers of projects to cut carbon emissions in developing nations, particularly China, are likely to pull out of the U.N. offset scheme and move to markets with higher prices, if plans to allow them to exit are implemented.

At a meeting last week, members of the board overseeing the U.N’s Clean Development Mechanism (CDM) said they would work on new rules to allow any registered project to exit the system. They will discuss proposed rule changes at its next meeting in September.

Some developers in China, where almost half of all registered CDM projects are located, said they would be interested in leaving the CDM, because carbon credits can fetch much higher prices in China’s new domestic trading schemes.

“If we can only choose between one or another market, it is all up to the financial return,” said a consultant manager with a Chinese state power company, who was not authorized to speak with the press.

The CDM allows investors in projects located in poor nations to earn carbon credits that governments and companies can use to help meet emissions targets set by the United Nations and the European Union.

Over 7,500 projects are registered under the scheme, which has channeled more than $400 billion in climate finance to developing countries according to the UN.

But a lack of demand for credits after countries failed to take on tough emission reduction targets has led prices to plummet to 0.20 euros from over 20 euros six years ago.

Sources on the board said some members had previously been reluctant to allow deregistration due to fears it could cause an exodus and weaken the market, which the United Nations hopes will be included in any new global climate deal.

Chinese opportunity

China, the world’s biggest emitter of climate-changing greenhouse gases, has recently launched seven pilot carbon markets to help slow the rapid growth in its emissions.

Companies covered by the Chinese pilot markets can use Chinese Certified Emissions Reductions (CCERs) to cover 5 to 10 percent of their total emissions.

CCERs have been valued at around $3 per tonne in the two deals that have been made public so far, much higher than the current value of CDM credits.

“Some of our requests to apply for the Chinese offset credits were turned down by the NDRC (National Development and Reform Commission) because the (U.N.) executive board has not given an exit to projects already registered (under the CDM),” said the consultant manager at the Chinese state power company.

CDM-registered projects cannot also generate CCERs. Registration in two schemes would allow double-counting, awarding developers twice for the same emission reduction.

“We are waiting to see the EB’s (CDM executive board) decision on how projects can withdraw and switch to another mechanism,” an official with China’s NDRC said.

But some developers said that even if deregistration is allowed, they would probably stay in the CDM in the hope that a new global climate pact will revive demand and prices.

“CDM is at an interesting phase now. More politicians are looking at new market mechanisms but have failed to come up with anything new. I wouldn’t be surprised if the CDM sees rehabilitation over the next few years,” said Renat Heuberger, chief executive of project developer South Pole, a Switzerland-based firm with projects in China and elsewhere.

Envoys from almost 200 nations will try to agree this year on the main elements of a text to be signed by their leaders in Paris in late 2015 to reduce emissions from 2020.

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