CDM supply to 2020 could be far lower than thought -study

Published 23:37 on December 3, 2015  /  Last updated at 23:51 on December 3, 2015  /  EMEA, EU ETS, International, Kyoto Mechanisms, New Market Mechanisms  /  No Comments

The global supply of CDM credits could be far lower than previously expected by 2020 because most projects won’t bother applying for the units, potentially bringing the ailing market into balance, according to a study from NewClimate Institute.

The global supply of CDM credits could be far lower than previously expected by 2020 because most projects won’t bother applying for the units, potentially bringing the ailing market into balance, according to a study from NewClimate Institute.

The findings are a follow-up to a two-year study published in May from the researchers that surveyed 1,310 CDM projects worldwide and found that despite inadequate carbon credit revenues, hardly any expected their mitigation activity to stop.

The follow-up study, launched on the sidelines of UN climate talks in Paris this week, found that the supply of CERs could be around 270 million CERs a year over 2015-2020.

This is far lower than forecasts published by the UNFCCC in August , which showed that the maximum possible supply of credits between 2015 and 2020 would be 3.24 billion CERs, or 648 million a year, excluding PoAs.

This could rise to as much as 1.28 billion a year, the data showed, if projects that had made emission reductions in previous years requested their CERs.

“A large proportion of this estimated potential is unattainable, since only 65% of potential emission reductions are covered by projects which are operating their monitoring systems,” the NewClimate study said.

“Under current market conditions, very few projects which are not currently in regular verification and issuance will restart or begin these cycles, whilst only a moderate proportion of those currently in verification and issuance cycles will stop doing so.”

The CDM has channelled over $300 billion of investment to carbon-cutting projects in the developing world, but investment has dried up as nations wrangled over new emission reduction goals, failing to bring fresh demand. That caused supply to balloon, sending CER prices crashing from over €20 in 2008 to current levels of around €0.60.

The researchers pointed out that their supply outlook was “in the same magnitude” as various estimates of global CER demand, citing studies from the CDM Executive Board in 2015 (77 million CERs/year), the World Bank in 2014 (205 million/year) and Point Carbon in 2012 (270 million/year).

They added that even a price of €2 would be unlikely to encourage many developers to go through the process of getting credits issued.

“A €2 market recovery will only lead to a modest increase in supply and thus could be initiated by a modest increase in demand,” the study said.

Countries have shown little interest in taking on additional demand for CERs, though airlines could be required to buy CERs if a global mechanism that will require the aviation sector to offset emissions from 2020 is agreed under the UN’s ICAO next year.

By Ben Garside – ben@carbon-pulse.com

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