Kyoto CO2 project scheme seen swayed by politics

An activist carrying black balloons representing CO2 emissions demonstrates outside the venue of the Climate Change conference in Nusa Dua, Bali island December 8, 2007.

LONDON (Reuters) - Politics played a "clearly significant" role in the executive rulings made in a clean energy project scheme under the Kyoto Protocol, a study published on Tuesday showed.

Researchers from the University of Zurich analyzed 1,000 greenhouse-gas emission-cutting projects submitted for registration by the Executive Board of the Clean Development Mechanism (CDM), a scheme run by the United Nations.

"The impact of political-economic variables is clearly significant," the report said, referring to the subsequent decisions made by the executive board.

The CDM allows companies and governments from rich nations to invest in clean energy projects in developing countries and in return receive offset credits, which they can sell for profit or use to meet emissions targets under Kyoto.

The CDM market more than doubled to $13 billion last year, according to a World Bank report published earlier this month.

The executive board decides on the approved projects types, which dictate what kinds of clean energy projects can qualify for CDM offsets. Around half of the projects submitted to the board produce renewable energy.

The board also reviews, registers and rejects the individual project submissions.

The report found that the board favored projects from countries that were represented by one of the 20 board members.

(View a list of current Executive Board Members cdm.unfccc.int/EB/Members )

Projects in countries with high levels of greenhouse gas emissions also saw higher rates of registration than those with lower emissions, and involvement by the World Bank in a project's submission improved its probability of success, the report said.

"We see some political influence in EB decision making, but it is not as overwhelming as some people portray it," Axel Michaelowa, one of the report's authors, told Reuters.

"The existing system seems to function rather well ... because the predominant determinant of EB decisions appears to be quality," he said.

ADDITIONALITY

Questions of environmental integrity have plagued the CDM, over whether projects are 'additional' or not.

Establishing "additionality" means proving that a project would not have been financially viable without the prospect of receiving CDM offsets.

Environmental group WWF said last November that one in five offsets are going to CDM projects that lack additionality.

Since these offsets are sold for profit to major polluters in rich nations, unadditional CDM credits are essentially helping to increase greenhouse gas emissions.

In light of these allegations, the report found "highly consistent evidence" that the board has become stricter over time with its rulings, thus limiting the registration of unadditional projects.

Despite these developments, Michaelowa sees room for improvement.

"The political recommendation for improvement of the CDM would be to make it as transparent as possible," he said.

To read the full University of Zurich report or for additional analysis on the carbon markets, go to www.reutersinteractive.com

(Reporting by Michael Szabo; editing by James Jukwey)