Clean Development Mechanism passes small-scale project milestone

More than 100 groups of small-scale carbon-cutting projects have been registered under the UN's emissions Clean Development Mechanism offsetting scheme since 2007, the body revealed yesterday.

Known as Programmes of Activities (PoAs), these umbrella groups of projects can include thousands of schemes that on their own may be too small to qualify for the CDM.

Combined, these distributed projects such as those designed to provide villagers with cleaner cooking stoves or solar lamps can share both the costs of CDM registration and transactions, as well as the investment risk.

They are designed to improve less developed countries' access to the UN's Clean Development Mechanism (CDM), which allows accredited projects to issue tradable Certified Emissions Reductions (CERs) that businesses and industrialised nations can purchase to help meet their emissions reduction targets.

The UN says 116 PoAs are now active under the CDM, and a further 250 projects are currently going through the accreditation process.

The latest schemes to qualify include a small-scale solar project in Thailand, micro hydro projects in China and Brazil, a solar LED project in Kenya, and a series of efficient cookstove projects in Mexico and eight African countries, as well as a renewable energy project in China.

The PoAs are spread over 42 countries, with more than a quarter in Africa - home to just two per cent of standalone CDM projects. Around 20 per cent are household energy efficiency projects, closely followed by small-scale solar projects, and methane avoidance projects.

Roughly 60 per cent of active PoA projects have entered the pipeline since the beginning of 2012, prompting Peer Stiansen, chair of the CDM Executive Board, to claim the initiative is taking the CDM to regions previously unable to take advantage of the offset scheme.

"PoAs promote technologies with significant co-benefits to local communities," he added. "These projects help people gain access to a range of benefits, from energy efficient cookstoves and lighting, to solar energy and even clean drinking water."

However, the CDM's credibility has been damaged by both dramatically falling CER prices, prompted by an estimated one billion-strong oversupply of credits and the failure of more countries to sign up to new carbon-cutting commitments under an extension of the Kyoto Protocol, the legal underpinning of the CDM.

The combination of an excess supply of credits and limited demand has prompted some experts to express doubts over whether investment can continue in CDM projects.

Analysts Thomson Reuters Point Carbon yesterday released a paper warning prices may tumble further once the embryonic Chinese Emissions Trading Scheme (ETS) gets under way later this year. An initial seven cities and provinces will pilot schemes during this year, paving the way for a nationwide scheme earmarked for 2015.

Point Carbon says that despite a reported floor price for the market of €7 a tonne, the price of offsets in the Chinese ETS is likely to be around €2.3 a tonne, well above the current €0.3 value of CERS.

As a result, Chinese projects, which make up the majority of the CDM market, are said to be delaying the release of CERS, seeking price negotiations, or even cancelling credit supply contracts, in the hope they will be able to sell their offsets at a higher price into the new Chinese markets.

Hongliang Chai, an analyst of emerging carbon markets at Point Carbon, said: "Unless the Chinese ETS implements stringent offset criteria, the scheme will, like the EU ETS, become flooded with excess offset supply, sending prices downwards."