The UN has launched an online platform to voluntarily cancel CERs, hoping to provide a new source of demand to help mop up the oversupply of credits overshadowing the beleaguered scheme and to help promote wider use of voluntary offsetting.
The launch is part of the UN’s wider Climate Neutral Now initiative, which encourages individuals, companies and governments to measure and reduce emissions then offset any remaining in an effort to push the world toward climate neutrality, which UN-backed scientists have said is needed by the second half of the century to stave off runaway climate change.
“We don’t have to wait until 2050 to be climate neutral … With careful planning, individuals and corporates can do it as of now,” said UN climate chief Christiana Figueres at the webstreamed launch event in New York.
Analysts don’t expect the drive to voluntary cancellation to have a significant enough impact on the CDM market’s oversupply, which measures in the hundreds of millions of units, to drive market prices higher than the roughly €0.50 they currently fetch in the EU carbon market.
Demand in the voluntary carbon market amounted to 87 million tonnes in 2014, according to Ecosystem Marketplace, a tiny fraction of the approximately 4.6 billion tonnes of emissions regulated under compliance markets.
“The voluntary market is quite small and we hope to give it momentum here,” said Lambert Schneider, chair of the UN’s CDM Executive Board.
Corporate giants Microsoft, Sony, Adidas and Marks & Spencer’s are among the companies to have pledged their support to the UN initiative.
“We believe in the power of accountability and have witnessed the transformative nature of carbon offset projects and sustainable community development, particularly in emerging nations,” said Rob Bernard, Microsoft’s chief environmental strategist.
He said Microsoft has since 2012 achieved its goal to be carbon neutral by boosting efficiencies, investing in renewable energy and buying offsets.
CER CANCELLATION PLATFORM
The online cancellation facility, which will be integrated into the UN’s CDM Registry, will provide holders of CERs a new opportunity to sell their inventories after the EU, previously the largest market for these types of credits, barred the units from its ETS.
The UNFCCC-operated platform aims to make it easier for consumers and small businesses to purchase and cancel CERs, allowing them to buy directly from project owners that have credits to offer rather than brokers.
Brokers have been the main sellers of CERs since the inception of the CDM, but most don’t sell small quantities to individuals and they typically require any clients to undergo rigorous background checks.
CDM project owners will be able to set their own prices and buyers will be able to peruse the catalogue of credits, for example searching for projects by type, country or additional sustainable benefits.
The UN hopes the platform’s ease of use, as well as zero commission fees, will stimulate demand for CERs. It is also building a database of factual information about CDM projects to help attract potential investors.
OLD PROJECTS IN
Just seven projects were listed on the site on Tuesday afternoon including a few wind farms from India, and a hydro dam and methane capture facility from Chile.
Prices started at $2.40 each (€2.16), which was more than four times the current market value of spot CERs on London-based bourse ICE Futures Europe.
The platform may prove to be the final opportunity for some holders of CERs from the first commitment period (CP1) of the Kyoto Protocol (2008-2012) to sell their inventories, as those credits held in government registries will be effectively erased at the end of the treaty’s first true-up period on Nov. 18.
CP1 CERs held in the CDM’s own registry are not subject to automatic cancellation, however. They can be transferred between accounts within the registry, and can continue to be voluntarily cancelled after the end of the true-up period, a UN official told Carbon Pulse.
“It is possible that the CDM Executive Board may set a deadline for receiving requests for issuance for CERs corresponding to emission reductions or removals achieved on or before 31 December 2012, but it is expected that any such deadline would have substantial lead time,” the official added.
However, critics called for investment in new projects rather than old ones or those that have had their environmental integrity questioned.
“We need to urgently unplug finance for new sustainable and climate-resilient projects in developing countries including perhaps a small selection of already approved CDM projects that truly depend on financial support to continue. This new tool fools potential consumers as it also allows ancient projects – such as those registered before 2012 – and offsets from problematic project types such as fossil fuel and large hydro power, to sell carbon offsets,” said Eva Filzmoser, director of watchdog Carbon Market Watch.
Following a sharp drop in prices over the past five years due to evaporating demand, the CDM’s executive is endeavouring to reshape and refocus the scheme to help it become part of countries’ post-2020 emissions cutting targets under a Paris climate deal.
MOVE AWAY FROM CDM
But some project owners aren’t waiting around for countries to rediscover an appetite for CERs, and are instead converting them into voluntary credits, known as VERs, or into offsets for use in South Korea’s national carbon market.
Analysts at Thomson Reuters Point Carbon doubted that the voluntary cancellation effort would reduce the CER glut significantly due to the relatively small size of the voluntary market.
In a July report, they said some 250,000 CERs have been cancelled from the CDM Registry and converted into Voluntary Carbon Units (VCUs), the credits sanctioned under the Verified Carbon Standard (VCS), one of the main certifiers in the voluntary market.
The analysts, citing VCS data, added that more than 610,000 CERs have been cancelled across all emissions registries worldwide and converted into VCUs.
Demand from South Korea is also seen as minor compared to the size of the current CER glut. Around 800,000 CERs have been cancelled to date on the CDM Registry for use in the Korean scheme.
By Ben Garside and Mike Szabo – firstname.lastname@example.org