missed this until now...Supply fears hit UN carbon credits
By Harvey Morris in New York
Published: September 5 2010 17:49 | Last updated: September 5 2010 17:49
Uncertainty about the supply of UN-issued carbon credits has led to their price hitting a four-month high.
Certified Emission Reductions (CERs) have surged on international carbon markets in recent weeks after a UN board acted over concerns that chemical plants in China and elsewhere in the developing world were deliberately overproducing HFC 23, a potent greenhouse gas, in order to claim the saleable credits for subsequently destroying it.
However, concerns about the environmental integrity of HFC 23 schemes last month prompted the board of the UN's Clean Development Mechanism to delay issuance of credits to several projects, meaning fewer of the credits will be available to European buyers. On Friday CERs breached €14 on the London-based European Climate Exchange, their highest value since early May.
The CDM, part of the Kyoto protocol on climate change, was intended to encourage green technology in the developing world while giving the developed world leeway in reducing its carbon emissions.
In practice, most credits have been generated by about 20 factories – some in China and India – that produce HFC 22, a refrigerant that is itself being phased out internationally because of its damaging impact on the earth's ozone layer.
The plants can claim UN credits for destroying HFC 23, a by-product of the process that is thousands of times more damaging to the atmosphere than carbon dioxide, and then sell them in the carbon market.
Environmental lobbyists say the inclusion of the HFC 23 by-product in the mechanism means factories in the developing world earn many times more from selling the credits than they do from producing HFC 22. In China, the government also benefits through taxation of the credits.
Carbon traders will be watching the outcome of a meeting of the CDM board in Brazil next week at which it will consider whether to cancel some CERs issued in the past, a move likely to drive up the offsets' price even further.
Connie Hedegaard, EU climate commissioner, acknowledged in Geneva on Friday that the environmental integrity of the UN mechanism had to be improved. She told a meeting on climate financing: "We want the CDM to be modernised, refined . . . It must be more streamlined, more simple."
Harry Beamish of CarbonDesk, a London-based broker, said the debate on the UN mechanism was part of an evolving process. "The carbon market has always come under scrutiny because it's a synthetic market created out of nothing. To push forward, the UN has to have a 'green' integrity."
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