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Ban large power projects to cut 67% of CER oversupply – researchers

20 Nov 2012 19:18:48 | edcm

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Large-scale power projects should be banned from the clean development mechanism (CDM) to cut the existing oversupply of offset credits and restore the environmental integrity of the mechanism, researchers at the Stockholm Institute for the Environment (SEI) recommended in a report published on Tuesday. It comes less than a week ahead of the Parties of Conference (COP)18 Doha summit.

The research was sparked by the question of how to tackle the 1.25bn oversupply of certified emission reductions (CERs), which has heavily weighed on the price of these credits in the secondary EU emissions trading system (ETS) market.

The CDM Policy Dialogue High Level Panel, which was set up to examine the state and future of the CDM, has outlined a number of ways to deal with the oversupply, including the option of setting up a fund to buy the surplus, or changing the mechanism's quality restrictions.

"It occurred to us there could be a simpler and potentially more effective fix to the oversupply: cease issuance of CERs from large-scale power supply projects," one of the report's researchers said in a statement.

According to the report, over 1.6bn CERs could be generated from large power supply projects, including coal, gas, wind or hydro, over the course of phase III (2013-2020) under the CDM's rules.

"That is roughly two-thirds of the total 2.5m CERs that the high level panel estimates will be generated in that period," it said.

CER prices have crashed in the EU ETS amid oversupply. The CER December 2012 benchmark contract closed at €0.85/tonne of CO2 equivalent (tCO2e) on Monday, down 87% compared with a closing price of €6.60/tCO2e on the same day in 2011.

While banning such projects would cut the oversupply without requiring additional funds to do so, it would also improve the environmental integrity of the CDM, the researchers added.

"Given the high share of large-scale power projects in the CDM pipeline and in many project developers' portfolios, the transition would be challenging... but it is feasible," the SEI statement added.

The EU has previously suggested it could curb the oversupply through further restrictions on CERs, even if the UN does not introduce additional quality restrictions, after an EU-commissioned SEI report last year also slammed large hydro projects for failing to cut emissions beyond a "business as usual" scenario (see EDCM 19 December 2011).

The EU already places certain conditions on CERs from hydro projects with a capacity above 20MW. Under the emissions trading linking directive, states are obliged to check that the projects meet criteria set out in the 2009 World Commission report on dams, before they approve the imports of these credits into the EU ETS.

A blanket EU-wide ban could instead make it impossible to use certain CERs for compliance, no matter whether a state had previously allowed the import. MLDB

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