* CDM exec says offset scheme is a proven, mature market
* Sees expanding role for CDM in new carbon markets
By Nina Chestney and Jeff Coelho
LONDON, July 19 The United Nations' carbon
offset market has a long future in helping the world curb
man-made greenhouse gas emissions, even with carbon prices at
record lows, the executive chairman of the U.N. Clean
Development Mechanism (CDM) said on Thursday.
U.N-backed carbon credits, called certified emissions
reductions (CERs), have plunged around 70 percent over the past
12 months as a massive supply of credits has built up because of
a drop in demand due to a slowing economy. The benchmark CER
contract hit record lows below 3 euros this week.
Low carbon prices have stalled new investment in low-carbon
technology, raising doubt about whether there is any point to
the 1997 Kyoto Protocol and its market-based mechanisms, notably
"I don't see the current low prices as affecting the
longevity of the CDM," Maosheng Duan, the executive board
chairman of the CDM, said in an emailed statement.
"The CDM is a mature mechanism that has proved its worth,"
he said. "One could easily predict an expanding role for the CDM
as a provider of quality offsets to the several emerging
emissions trading systems in various parts of the world."
The Kyoto Protocol is the world's only legally-binding pact
that enforces limits on greenhouse gas emissions, which are
widely blamed for contributing to climatic changes such as
drought and floods.
But U.N. offset schemes will remove at best 2 billion tonnes
of carbon dioxide (CO2) equivalent over a five-year compliance
period through 2012, barely making a dent in some 170 billion in
fossil-fuel emissions over that time, analysts say.
Under the $22 billion CDM, governments and companies in
developed countries can earn carbon credits by investing in
low-carbon projects in developing countries. They can use the
credits to achieve their Kyoto targets.
Future demand for CER credits could come from new and
emerging carbon markets in countries like Australia, Mexico and
South Korea, the World Bank said in May.
But the crash in prices has been hard on many project
developers, particularly those that have contracted to buy
carbon credits at prices much higher than current
"This downward movement is extremely negative for project
developers," said Gus Hochschild, alternative energy equity
analyst at Mirabaud Securities, adding low prices could cause
the liabilities of some companies to outstrip their cash
Some project developers, such as Camco International
and Trading Emissions Plc have been
renegotiating or adjusting their contracts in a bid to help cut
"At Camco we have worked hard to ensure that our carbon
portfolio has significant value despite current market
conditions," Scott McGregor, chief executive of Camco, said.
"We have successfully restructured to operate in the new
environment and will continue to expand our business model to
develop clean energy projects," he said.
U.N.-backed offset prices were dealt a fresh blow this week
after three separate European Union sources on Tuesday said
details on how to fix a supply glut in the EU's carbon market
would now not come until after the Commission's August recess.
This prompted falls of up to seven percent in already low EU
carbon prices and weighed heavily on the CDM
The EU's emissions trading scheme and the CDM have been in
an interdependent relationship since 2005, as most of the demand
for offset credits comes from the 12,000 or so big polluters in
the EU scheme.
Prices for CERs often follow movements in EU permits called
EU allowances (EUAs) and both markets are over-supplied, which
has dragged prices to record low levels.
Even if EUAs recover when details of the Commission's fix
emerge, CERs could continue to drop to near zero, some analysts
warned this week.
But some market participants sought to remain positive.
"It is certainly not the death of the market and we expect
CERs to carry on trading even if we won't see the heady prices
of 13 euros again," a carbon trader said.
"I can understand panic when a lot of companies' portfolios
are five euros under water but the EU and U.N. have the ability
to limit supply and decide which credits are eligible and where.
It's not all doom and gloom," he added.