U.N. carbon panel slashes budget amid weak offset demand

LONDON Mon Nov 11, 2013 8:09am EST

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LONDON (Reuters) - The U.N. panel overseeing the Clean Development Mechanism (CDM) wants to cut the budget for administering the scheme by 14.2 percent next year amid fears its pipeline of carbon-cutting projects in the developing world will dry up.

The CDM has helped to channel more than $315 billion in climate finance to help poor nations cut emissions of greenhouse gases but faces a slowdown next year, the CDM's Executive Board said in its report of last week's meeting published late on Friday.

Board members urged the budget cut to avoid dipping into reserve funds of almost $200 million amassed from fees charged for approving projects and issuing carbon credits over the last seven years.

The board called for a $5.5 million budget cut for 2014, pegging spending at $32.9 million.

"Requests for (CDM project) registration have declined significantly, and are now at levels not seen since 2005. They may be expected to remain low for 2014 and 2015," the report said, without giving figures.

The CDM was devised under the 1997 Kyoto Protocol to help industrialized nations meet the pact's legally binding emission targets more cheaply by allowing them to use the carbon credits it generates.

The mechanism has saved countries more than $3.6 billion in compliance costs, the board said.

Some 7,400 projects such as wind farms, schemes to cut methane emissions at landfill sites and hydroelectric plants in 89 countries have been registered under the mechanism since the end of 2004.

But the failure of nations to craft a new climate change deal to force emission cuts on the biggest emitting countries has left the market for carbon offsets oversupplied, sending prices crashing and nearly bankrupting many of the companies that invested in CDM projects.

U.N. negotiators began two-week talks on Monday in Warsaw to craft the details of an international climate pact to be agreed in 2015 and to come into force after 2020.

The final deal will likely include new market-based mechanisms designed to allow the private sector to fund emissions cuts at the cheapest cost, but the CDM's role alongside any new mechanism is unclear.

To help widen demand for CDM offsets, the board wants nations without binding emissions targets to be able to use the credits to meet voluntary emission pledges.

It has also called on the Green Climate Fund, a financing vehicle expected to help allocate $100 billion a year by 2020 to the world's poorest countries, to invest in CDM projects.

(Reporting by Susanna Twidale; Editing by Dale Hudson)

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