UN Climate Chief Figueres Favors `Transformational' Projects as HFCs Ebb
United Nations climate chief Christiana Figueres vowed to expand the world’s second-biggest carbon market by favoring “transformational” energy and transport projects over industrial-gas credits.
Investors are forecasting a reduction in emission credits in developing countries as UN regulators tighten scrutiny of projects that cut hydrofluorocarbons, an industrial gas known as HFC and linked to almost a half the offsets created so far under the UN-overseen Clean Development Mechanism.
“HFCs definitely played a role in the beginning of the market,” Figueres said in a telephone interview today from Bonn. “The question is whether now, as we continue into a more mature market, we shouldn’t be looking for volume and scale in other types of projects as well. And there I would put at the top of my list those that have the potential to bring about industrial and economic transformation.”
The Bonn-based environmental group CDM Watch said in a June 14 report that some companies won “bogus credits” by artificially boosting greenhouse-gas emissions on HFC projects. The claim is rejected by polluters and investors including Natsource LLC.
“The potential perverse incentive was recognized very early in the development of the methodology and it was already addressed in the first revision of the methodology,” Figueres said. “So what the board is doing now is it’s looking at all these safeguards and trying to determine whether that set is enough or whether they need to introduce any other safeguards.”
Credits generated in the CDM can be used in the European Union’s carbon cap-and-trade program, the world’s largest. The European trading system, started in 2005, caps emissions for more than 12,000 factories and power stations, allowing them to buy and sell credits and use UN offsets known as Certified Emission Reductions in place of EU allowances.
The EU is working on a proposal to restrict the kinds of offsets linked to industrial gases that can be used for compliance in the EU. It said earlier this year that some HFC projects were generating “significant windfall profits.”
“Any country or group of countries is free to bilaterally decide the characteristics of the demand that it will have in its participation in the market,” Figueres said. “However, I would say that another way of looking at it is how we could encourage certain other types of projects, for example those that really have a true economic-transformational potential.”
Projects linked to renewable energy, energy efficiency and transportation “have the potential to bring about not just volumes of tons reduced but also to transform the way we produce and consume energy,” she said.
UN CERs for December delivery jumped almost 12 percent in the past month after CDM regulators said they are withholding credits as they review requests for projects that cut HFC-23, a gas whose warming effect is 11,700 times more powerful than carbon dioxide.
EU climate chief Connie Hedegaard said today the 27-nation bloc wants international action to control hydrofluorocarbons. The EU said the Montreal Protocol, an international agreement to protect the world’s ozone layer, is the appropriate forum for that and will complement the efforts undertaken through the UN Framework Convention on Climate Change.
‘Very Low Ebb’
The confidence of the carbon market in the CDM is at a “very low ebb,” the International Emissions Trading Association said last month. Climate campaigners including CDM Watch have criticized the UN market for lack of transparency in decision-making and poor environmental integrity.
While the global CO2 market increased 6 percent to $144 billion last year, the value of investment in CDM projects dropped 54 percent, according to World Bank data.
“It’s not unusual for the market to react the way it is reacting in an atmosphere of regulatory uncertainty,” Figueres said. “It’s very understandable. The market also needs to understand that this particular commodity is created through a political agreement and hence the only value that the commodity has comes from a successful political agreement.”
Envoys worldwide are bracing for a new round of talks to iron out a climate-protection framework after the Kyoto Protocol expires in 2012. They failed at last year’s meeting in Copenhagen to reach a binding deal to cut greenhouse gases, settling instead for a political accord calling for $100 billion a year by 2020 in climate financing for poor nations. It also includes a vow to stop global temperature increases at 2 degrees Celsius (3.6 degrees Fahrenheit) from pre-industrial times.
They also recommended that the CDM improve its efficiency and transparency, which Figueres said she is addressing with the executive board of the CDM. Given “the potential that the CDM has to go to scale, even those reforms probably don’t go far enough,” she said.
“There’s an undeniable low in the market right now,” she said. “However, let’s not forget what is there,” she said. “We do have almost 2,400 projects in almost 70 countries and these projects are up and running.”
In the run up to the next summit in Cancun, Mexico, negotiators are considering different types of overhaul to expand the CMD, including a complementary new market and non- market financial mechanisms, Figueres said.
One of the options is “the creation of a fund that would help support investment in both mitigation and adaptation on non-offset basis,” and others include sectoral crediting, where effort to limit emissions in a given industrial sector could earn credits, Figueres said.
“The natural anomalies that we have seen again this year - - floods in Pakistan or heat waves and fires in Russia -- are very clear reminders to governments that time is running out,” Figueres said. “While they may not be ready yet to agree to an overarching agreement, it’s very clear that they need to make firm steps in that direction, and from what we’re seeing of preparations to Cancun, I’m confident that governments are aware of this need.”