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Inclusion of CO2 capture in CDM unlikely to add to emissions credit supply glut

28 May 2012 10:36:46 | edcm

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The introduction of a new type of clean development mechanism (CDM) project is likely to be ruined by the low carbon price, according to an expert on the technology.

And the unsuitability of carbon capture and storage (CCS) for the world's least developed countries means that the EU's emissions trading system (ETS) is unlikely to see an influx of credits from such projects, according to a Carbon Capture and Storage Association (CCSA) executive.

The low value of certified emissions reductions (CERs) means that CCS projects, which are highly capital intensive, are unlikely to be financially viable under CDM without other investments, said Luke Warren, deputy CEO of the CCSA.

"The big question is the lack of demand for CERs. Developing CCS in the power sector is quite expensive. CDM alone is not going to deliver this," Warren said.

"CDM could financially support the operating costs of a project but what we need is some other form of climate finance [for capital]," he added.

CCS projects at gas processing plants are likely to be the most viable for CDM, the deputy CEO said.

Spot CERs have shed 70% of their value over the past year, trading at €3.60 per tonne of CO2 equivalent (tCO2e) on Thursday. The steep price decline is due to a lack of demand as the eurozone's economy continues to struggle and drive down emissions.

The CDM Executive Board confirmed this week that it is pushing ahead with plans to allow a CCS methodology to be developed, after negotiators at last December's UN climate talks in Durban approved the technology's inclusion in the flagship carbon offset scheme (see EDCM 23 May 2012). Experts predict that CCS will be termed a large-scale project type under CDM.

From next year, only CERs from projects registered in the world's least developed countries, or projects in emerging economies registered before the end of 2012, will be eligible for use within the EU's emissions trading system.

But the countries that have expressed the strongest interest in developing CCS - including United Arab Emirates, South Africa, China and Indonesia, according to Warren - are not on this list.

Other climate finance

The CCSA believes that the UN's approval of CCS could pave the way for companies that want to develop the technology to access other climate finance, including the $100bn (€80bn) Green Climate Fund, promised by developed countries at the 2010 round of climate negotiations to help developing countries adapt to climate change, rather than paying for mitigation actions such as the CDM.

A UN source also told ICIS there was no direct link between a project receiving CDM approval and funding from the Green Climate Fund.

CDM Watch, a non-government organisation that opposes including CCS in the CDM on the grounds that it will provide a "perverse incentive" to develop gas and oil pipelines, also warns that the new methodology could compound the existing problem of a CER oversupply.

"Do we need any more CERs? [The CCS methodology] will be very, very large and there are too many credits already," Eva Filzmoser from CDM Watch said. VF

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