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China Leads Developing World in CDM Rush

Steve Zwick

The World Bank says sales of CER projects have helped developing countries raise billions for clean development projects and offset the equivalent of 374 million tons of CO2 in the past year and a half, with Europe and Japan accounting for 90% of the buying. The Ecosystem Marketplace reviews the findings.

The World Bank says sales of CER projects have helped developing countries raise billions for clean development projects and offset the equivalent of 374 million tons of CO2 in the past year and a half, with Europe and Japan accounting for 90% of the buying. The Ecosystem Marketplace reviews the findings. COLOGNE, GERMANY— "We came to do business," says Zhao Jun, head of CDM projects for the Chinese Foreign Ministry's Department of Treaty and Law. In his hand is a telephone-book-sized catalogue of CDM projects for sale across China, each with detailed emission reduction targets, financing arrangements, and a price tag. According to Zhao, the projects have been flying off the shelves at the 2006 Carbon Expo in Cologne, Germany. "The prices are based on our own valuations," he says. "Some people like to link their prices to an index, or to the European Climate Exchange (ECX) price, but we believe that is the wrong way to go about it." And with catalogue prices in the range of $7.00 per metric ton of carbon emission reduction in a year that saw exchange-traded allowances hit $40.00, it's easy to see why Chinese projects accounted for a staggering 66% of Certified Emission Reduction (CER) projects tracked by the World Bank between January 2005 and March 2006 – up from just 5% in 2004. In the World Bank's "State and Trends of the Carbon Market 2006", issued May 10, the Bank showed Brazil had generated 10% in the same period, grabbing a woefully distant second place from India, whose market share plunged from 43% in 2004 to just 3% in the new survey period. Surging prices for European Union Emissions Trading Scheme (EU ETS) allowances drove the value of allowances traded in 2005 to $10 billion, with European Union Allowances (EUAs) accounting for $8.2 billion of that. Dollar volume for the first quarter of 2006 topped $7.5 billion, and Europe accounted for 75% of volume in 2005 and 87% in the first quarter of 2006. The bull market in traded products drove up prices on project-based credits as well, but not as much as many had feared: total tonnage volume of project based credits increased 340% from 2004 to 2005, while the dollar value rose 490%. Karan Capoor, lead author of the report, speculates that Indian companies, perhaps motivated by the soaring prices, held off on making deals in hopes of even higher prices down the road. Members of the Indian delegation were mum on the subject, saying that, unlike China, Indian companies tended to negotiate their own deals on an individual basis. "Whether they priced themselves out or not is something I cannot comment on," said one Indian delegate, "but I can say that there are literally hundreds of Indian projects in the pipeline, and I am sure next year's figures will reflect that." The markets may be soaring, but so are energy needs. World bank chief scientist Robert Watson says the types of CER projects currently being funded aren't going to generate the kinds of reductions needed to stabilize atmospheric carbon dioxide at an acceptable level. He estimates that stabilizing atmospheric CO2 at 450 parts per million would cost between $80 to $100 billion per year, while a more lax target of 650 ppm could be reached for a cost somewhere between $10 billion and $40 billion per year. "While it seems to be the view in some quarters that small-scale renewable energy – solar, wind modern biomass – will be the solution, we have come up with a different conclusion," he says. "We looked at India and China and asked what technologies they are most likely to use over the next 20 to 30 years, and the answer is they're going to use their cheap coal." He says the single greatest priority should be getting Integrated Gasification Combined Cycle (IGCC) power plants to market. IGCC technology converts coal into a burnable gas and carbon that can be captured, but it is also an unproven, currently expensive, technology. What's more, IGCC without a proper capture mechanism will still emit CO2, and environmentalists say trading schemes don't take into account environmental degradation caused by firing up coal mines around the globe. China's Zhao says not to worry. "We believe in IGCC," he says. And he promises it will figure prominently in CER catalogues to come. Steve Zwick is a freelance journalist and Editor-at-Large of Futures Magazine. He can be reached at Steve.Zwick@gmail.com. First published: May 18, 2006 Please see our Reprint Guidelines for details on republishing our articles.

Please see our Reprint Guidelines for details on republishing our articles.