North Korea seeks to earn hard currency via carbon credits

SEOUL Sun Mar 6, 2011 11:24pm EST

A general view of the North Korean propaganda village of Gijungdong as seen from South Korea's Taesungdong freedom village in Paju February 16, 2011. REUTERS/Jung Yeon-je/Pool

A general view of the North Korean propaganda village of Gijungdong as seen from South Korea's Taesungdong freedom village in Paju February 16, 2011.

Credit: Reuters/Jung Yeon-je/Pool

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SEOUL (Reuters) - Impoverished North Korea, facing sanctions over its nuclear weapons programme, hopes to earn much-needed hard currency by selling U.N.-backed carbon offsets from a series of hydro-power projects.

If approved and registered by the United Nations, these would be the first projects for North Korea under a scheme called the Clean Development Mechanism. This scheme allows developing countries to earn tradeable carbon credits for emissions reductions from clean-energy projects.

But some analysts questioned the demand for carbon credits from North Korea, with fears the money might be siphoned off to nuclear arms or other military projects.

The government has asked the Hanns Seidel Foundation of Germany, which focuses on humanitarian issues, to act as a go-between by working with U.N.-approved verification agency

TUV NORD.

According to Bernhard Seliger, the foundation's representative in South Korea, North Korea is initially looking at trying to get approval for three hydro power plants of between 7 and 8 megawatts.

Seliger told Reuters he visited the three hydro-plant construction sites in the north east corner of the country in January.

In a statement to Reuters, TUV NORD confirmed the Hanns Seidel Foundation had engaged their services.

"In this respect, TUV NORD intends to verify hydropower dams in North Korea once pre registered with United Nations Framework Conventions on Climate Change (UNFCCC) via the Beijing branch of its Chinese subsidiary TÜV NORD Guangzhou," it said.

If registered, the plants could yield millions of euros over several years.

Beijing-based lawyer Tom Luckock, who specialises in projects that curb greenhouse gas emissions, estimated that an 8 megawatt hydro plant could yield about 23,000 U.N. offsets a year.

CARBON CURRENCY

The offsets, called Certified Emissions Reductions or CERs, are generated from registered CDM projects, such as wind farms, that are rewarded for reducing greenhouse gas emissions.

The offsets currently trade near 12 euros each and are bought by governments in rich nations that need to meet U.N. emissions reduction targets.

Europe is the biggest buyer, with big polluting firms allowed to buy the offsets to meet a portion of their emissions reduction targets under the EU's emissions trading scheme.

"Finding ways to secure foreign currency is the priority for North Korea, which is linked to everything from food to raw material imports to boost reduced productivity," said Cho Myung-chul, a senior researcher at Korea Institute for International Economic Policy.

North Korea's moribund economy has suffered after years of mismanagement, severe floods that have ravaged its crop-growing areas and sanctions imposed after a nuclear test in 2009.

The Stalinist state was subjected to more U.S. and South Korean sanctions last year for the sinking of the South's Cheonan warship. The North denies it torpedoed the vessel.

Seliger said North Korea, which signed the U.N.'s Kyoto Protocol climate pact in 2005, was also interested in biomass power generation projects under the CDM.

The U.N.-approved national agency that assesses and approves CDM projects in North Korea was not available for comment.

Questions remained on demand for North Korean CERs.

"Even if they open up, who in the world wants to pay for North Korea that is blamed for its nuclear weapons program?" said Choi Soo-young, a senior researcher at Korea Institute for National Unification.

Cho of the Korea Institute for International Economic Policy, said the United Nations needed to prevent outside cash going into its nuclear development activities.

"Their limited access to hard currency has to be a concern for buyers -- the damages clauses will carry limited weight without some security there," said Luckock, of global law firm Norton Rose.

Another challenge: North Korea would have to make public its energy consumption and generation data and disclose information on the amount of energy linked to the hydro project.

"Annual inspection, constant measurement and energy flow posting on the website -- all these things are new for North Korea," Seliger said, referring to the UNFCCC website, which requires any CDM project applications to contain a lot of detailed data, such as baseline emissions data for the power sector in a region.

(Writing by David Fogarty; Editing by Clarence Fernandez)

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