Official UN projections for the amount of CER carbon credits to flow up to 2012 have been cut further, to just over one billion. The revision comes as concern mounts over the hit to carbon project investment from administrative delays and sagging credit prices.

The UNEP Risoe Centre said in its February issuance report that it now expected just 1.035 billion tonnes of emissions reductions to be issued before the end of the first, and at this stage the only, agreed Kyoto Protocol commitment period. This is down from the most recent past estimate of 1.050 billion tonnes and is half the roughly two billion forecast before the Kyoto period began in 2008.

CERs are the credits generated under the UN’s Clean Development Mechanism (CDM) for clean-energy investment by developed countries and their companies in the non-industrialised world. The CDM is one of the mechanisms established by the UN climate convention (UNFCCC) under the Kyoto Protocol to stimulate low-carbon, sustainable development aimed at tackling climate change.

Up to the end of February, 386 million CERs had been issued by the CDM Executive Board. It issued 13.3 million of the offsets during the month. Out of 2000 projects that have achieved registration, only one-third have had credits issued. Another 3000 projects are in the pipeline, still in the pre-registration stage.

The CDM has been beset from its inception by delays in processing of registrations and issuances. In the early days, the board was under-resourced but more recently processing has slowed amid questions marks over the credibility of the process – which relies heavily on private sector firms to validate projects and verify emissions reductions.

There is disagreement within the UN carbon project sector and its administration over whether rules should be relaxed to speed the flow of credits, or whether oversight should be tightened to ensure the credibility of emissions reduction action.

CDM executive board member Diana Harutyunyan this week came out at odds with the board’s chairman when she said it was crucial renewable energy projects satisfy additionality tests in order to earn carbon credits. Additionality requires that projects are underpinned by climate-related financing. The argument is that if they don’t amount to efforts motivated by tackling climate change – that is, they were going to happen anyway – then they should not earn revenue from carbon credits.

“If they are not additional, they should not be in the CDM,” Harutyunyan told Bloomberg. Board chairman Clifford Mahlung proposed last month that rules for such projects might be eased to help spur clean energy investment hasten the rate of CER issuance.

Not helping the UN carbon credit market are the low prices for CERs over the past 15 months as demand for offsets fell away with the onset of world recession. Prices for CERs have during that time sunk to levels lower than the cost of projects, making investors loath to commit capital to new projects. At current levels below €12, CER prices remain not far above the break-even levels for many types of projects.

Harutyunyan said the executive board was concerned over the impact of low carbon prices sapping investment support for the market. The stalling of US Congress moves toward an emissions cap and trade scheme, that would likely recognise CERs and raise demand, is also seen as a blow.

Reuters, Bloomberg 4/3/10