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UN Seeks Carbon Market Revamp as Green-Project Backers Bolt

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UN Seeks Carbon Market Revamp as Green-Project Backers Bolt
Prices for credits generated from the emission-reduction program have plunged as much as 99 percent since 2008 as the global economic slowdown cut demand. Photographer: Lai Xinlin/AP Photo

Nov. 14 (Bloomberg) -- Climate negotiators meeting in Warsaw have until the end of the year to overhaul the United Nations’s 16-year-old carbon credit system or risk exacerbating a record plunge in funding for clean-technology projects.

Investment in UN Clean Development Mechanism projects registered this year slumped to $15 billion in the 10 months through October from $198 billion in all of 2012, the first drop since 2005 when the UN started publishing the estimates. Failure to reform the CDM may hamper market-based efforts to curb emissions, according to the Project Developers’ Forum, a lobby group based in London.

Envoys from 195 nations, industry groups and investors are debating improvements to the CDM, a key pillar in the UN-endorsed goal of keeping global temperatures from rising more than 2 degrees Celsius (3.6 degrees Fahrenheit) from pre-industrial times. Prices for credits generated from the emission-reduction program have plunged as much as 99 percent since 2008 as the global economic slowdown cut demand.

“Losing the CDM is bad for the climate because we will lose expertise and experience” in areas including measurement, reporting and verification of greenhouse-gas reduction, said Gareth Phillips, chairman of the Project Developers’ Forum, which represents 53 investors in offset projects including Gazprom Marketing & Trading Ltd. and Mitsubishi Corp.

Tradable Credits

UN Certified Emission Reductions for December dropped from a peak of 23.38 euros ($31.32) a metric ton in 2008 to as low as 20 euro cents on April 17, reducing the incentive for nations to invest in less-polluting forms of energy in developing economies from Bangladesh to Brazil. The benchmark front-year contract traded at 49 cents a ton on the ICE Futures Europe exchange at 10:50 a.m. in London.

The CDM, set up by the 1997 Kyoto Protocol, lets companies and nations earn tradable CERs to offset their fossil-fuel emissions in exchange for sponsoring clean-energy projects in developing countries. The program has supported more than 7,300 projects in 93 countries since 2005, CDM figures show.

The supply of CERs may increase by about 15 percent next year to 310 million metric tons as project owners boost issuance before a 2015 deadline, according to Bloomberg New Energy Finance. Under European Union and Kyoto Protocol rules, offsets for emission reductions made before 2013 aren’t eligible for any market mechanism after March 31, 2015.

New Mechanisms

The CDM executive board agreed in March on 22 recommendations for improvements to be decided in Warsaw, along with submissions from nations and third parties. Negotiators must agree on reforms ranging from simplifying the CDM approval process to detailing the role of countries that host renewable-energy projects to meet a Dec. 31 deadline.

“The Board came up with some valuable recommendations at the beginning of the year,” Peer Stiansen, chairman of the CDM Executive Board, said in a Nov. 8 e-mail. Nations “need to take these recommendations and make the CDM an even more effective tool for mitigation and development,” he said.

Talks in June held by the United Nations Framework Convention On Climate Change in Bonn were canceled after Russia blocked debate when it demanded a review of voting procedure rules. The Kyoto Protocol requires an evaluation of CDM rules by year-end.

“It won’t surprise me if they don’t complete the review in Warsaw,” Dirk Forrister, chief executive officer of the International Emissions Trading Association in Geneva, said Nov. 6 by phone. “Everything in the UNFCCC seems to take longer than it’s supposed to.”

The UNFCCC is crafting a treaty to be signed in 2015 that will limit carbon emissions worldwide and replace the Kyoto Protocol. The deal is meant to come in force in 2020.

“We want to take the best bits of the CDM past the Kyoto Protocol, to help it become part of the new mechanisms that will form the post-2020 market,” said Phillips at the Project Developers’ Forum. “We also need to bridge the gap between 2015 and 2020. It will take as many as five years to build a new market mechanism under the UN, so the CDM needs to carry on.”

To contact the reporter on this story: Alessandro Vitelli in London at avitelli1@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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