CER issuance restarts but probe could cut future supply
Issuance of certified emission reduction (CERs) has restarted, with 2.4m credits arriving over the past two days, data on the UN website showed on Friday.
These were the first CER batches to arrive since mid-July, after the board took time out to implement new rules over the past fortnight (see EDCM 26 July 2010).
Yet future CER supply could be put in jeopardy as the executive board has now decided to go ahead with a probe into some of the most prolific projects in the clean development mechanism - hydrofluorocarbon (HFC-23) destruction at large industrial plants.
At Friday's board meeting, members decided to launch a probe into whether HFC-23 projects have been maximising emissions to receive credits. If the probe shows that projects have been gaming the system or that methodologies behind the projects are faulty, this could put around 50% of current credit supply at risk.
The probe was suggested by the UN's methodologies panel last month after environmental groups and auditors flagged up that plants emitting HFC-23 appeared to come online when CER revenues rose above a certain level (see EDCM 24 June 2010).
The operating histories of the chemical plants destroying HFC-23 gases will be at the heart of the probe.
This week's issuance
Most of the carbon credits issued this week were allocated to a single project cutting nitrous oxide emissions from a Chinese nylon plant, with Fortis and Natsource Asset Management listed as indirect participants. This project got 2.1mCERs.
Nitrous oxide (N2O) projects are mentioned on a potential blacklist of CERs, that could come into play in the largest buyer market for carbon credits - the EU emissions trading system - after 2012. But N2O projects have escaped the fire aimed at hydrofluorocarbon destruction schemes to date.
Two Chinese wind farms also received credits this week, with Spanish power producer Endesa one of the partners.
The Chinese wind industry is also a hot-spot within the clean development mechanism, as it is already subsidised through feed-in tariffs. The two projects got 210,000 CERs together.
Analysts expect issuance to pick up throughout August, but carbon investors are still wary. Even if August is a bumper month, this will only plug some of the shortfall racked up in July, they said.
The news did not immediately push up CER prices in the secondary market. Fears over HFC-23 supply have already been factored into the curve and sharp price moves are unlikely until the probe has led to firm results. IS
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