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EU Should Focus CDM Incentive on Renewable Power, De Boer Says

The European Union should rethink its plan to restrict use of emission credits from the world’s biggest greenhouse-gas offsetting program, said a former United Nations’ chief climate official.

“The last thing we need at the moment is a sense that Europe is reneging on its commitment” to emissions trading, said Yvo de Boer, former head of the UN Framework Convention on Climate Change, who is now a climate change and sustainability adviser to KPMG LLP, the consulting company. The EU instead should allow use of credits from projects in emerging nations that provide renewable power to poor people with no current access to electricity.

De Boer was speaking in London after Clean Development Mechanism offsets dropped to a record 6.69 euros ($9.28) a metric ton on Oct. 20. A record number of emission-reduction projects are seeking registration by the end of next year, boosting supply because of a deadline imposed by the EU, whose factories and power stations are the main buyers of credits.

From 2013 the EU will accept only new offset projects based in least-developed countries. Additionally, the import of credits generated by reducing industrial gas hydrofluorocarbon- 23 and of those tied to some nitrous-oxide projects will be banned as of May 2013.

Renewable Energy

The 27-nation bloc should rethink its carbon-market restrictions on new projects, de Boer said in an interview at the Carbon Show in London. The EU rules should “focus on renewable energy access in countries that don’t have access at the moment,” ensuring the world’s poorest people in emerging nations including India would get access to green power rather than electricity from fossil fuels, he said.

The CDM has “proven it’s flourished in larger economies and for larger projects,” de Boer said. There is insufficient scope to curb emissions in least-developed nations, he said.

A record of at least 592 projects entered the validation stage of the CDM program in the three months ended September, about 14 percent of all projects seeking registration under the program of the 1997 Kyoto Protocol. Almost 3,000 projects have been approved since the program started. China is the biggest supplier of credits.

The EU market, including UN offset credits, is oversupplied by 9.3 percent in the five years through 2012, according to a model by Bloomberg New Energy Finance in London. The model assumes actual emissions of 10.31 billion tons against a total cap of 10.65 billion tons. The use of 610 million tons of offset credits brings the net oversupply to 957 million tons.

New Markets Needed

UN CDM credits for December rose 1.2 percent today to 7.03 euros a ton on the ICE Futures Europe exchange in London as of 5:26 p.m. local time.

New carbon markets are needed to focus on the world’s seven or eight biggest and most-advanced developing nations, said Alexander Sarac, a climate lawyer in London with DLA Piper LLP, the world’s second-largest law firm.

China, for instance, probably will have its own cap-and- trade greenhouse gas market by 2025, Sarac told Carbon Show delegates on Oct. 21. Programs to tackle greenhouse gases in high-emitting industries like steel making are “really only interesting for a few extremely advanced developing countries” with the government resources and accounting ability to put them in place, he said.

‘Economic Priorities’

The approximately 120 less-advanced developing nations could continue to tap the CDM, said Sarac, who was previously general counsel for JPMorgan Chase & Co. (JPM)’s EcoSecurities unit based in Dublin.

It’s probably unlikely that EU lawmakers will soon revisit the details of the bloc’s directive for emissions trading, which would be needed to implement de Boer’s “interesting” ideas, said Andrei Marcu, who is leaving Mercuria Energy Group Ltd., where he is head of regulatory affairs, at the end of this week.

EU lawmakers will be focusing on economic priorities over the next few months, as well as climate negotiations starting November in Durban, South Africa, said Marcu, who is joining the Centre for European Policy Studies in Brussels, which conducts research into economic, financial, energy and climate change policies.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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