November 04, 2009
A U.N. scheme initially shunned by investors as too risky is now pulling them in to help achieve dramatic cuts in carbon emissions in developing countries and improve the livelihoods of millions of people.
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The scheme is designed to spread simple technologies such as solar lanterns, more efficient cooking stoves and solar water heaters across villages, towns and districts, cutting emissions.
Investors say a "program of activities", or PoA in the language of the United Nations, is the way of the future because it allows almost limitless scaling up of the existing Clean Development Mechanism, which favors big single investments such as wind farms that often fail to reach the grassroots.
"It is very clear that the project-by-project standard way of CDM is not going to be allowed in many countries," said Chandra Shekhar Sinha, head of Environmental Markets in Asia for J.P. Morgan. "If you want to be active in the normal markets, China and India and so on, you have to move towards these approaches which move towards sectoral approaches," he told Reuters.
The CDM allows investors to build clean-energy projects in developing countries and earn U.N. carbon offsets for every ton of emissions they save from being emitted. The European Union favors broadening the CDM to drive emissions reductions across industrial sectors in poorer nations.
It wants the CDM's project-based approach to be phased out for advanced developing countries, such as India and China, to help least developed nations get a bigger slice of the CDM pie, worth 6.5 billion dollars last year.
China and India have captured the bulk of CDM's investment, but the EU has cast doubt on the environmental integrity of giving carbon credits to large hydro and wind power projects.
The shift to PoA, though, has been slow. Confusion over rules and fears by U.N.-approved project auditors that they could face huge bills for mistakes has curbed appetite for the scheme until this year when the U.N. panel that approves CDM projects stepped in to clear up some of the concerns.
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U.N. data shows that, globally, one PoA project is already formally registered and 15 more are being examined by auditors. Dozens more are being developed or evaluated by investors.
"We see programmatic CDM as a growth area but we're being relatively cautious in the development of these projects because our experience has shown that the rules in CDM are continuously evolving," said Paul Soffe, business development manager for Ecosecurities.
The project developer and advisory firm is helping develop two PoAs in Tunisia and Mexico and is looking at others. In Tunisia, the project involves installing about 150,000 solar water heaters in households and is expected to yield about 600,000 U.N. carbon offsets called certified emissions reductions (CERs) over 10 years.
Emergent Ventures India is evaluating a number of PoAs, including upgrading low-voltage power lines to more efficient high-voltage lines in India as well as upgrading transformers to reduce distribution losses of up to 35 percent.
"I have seen that people who were waiting for some kind of clarity six months back, now they are becoming more active," said Emergent Ventures CEO Ashutosh Pandey. He expected a rapid increase in PoA projects in India.
All developers, though, point to high auditing costs.
Pandey said validation costs for each PoA project were between 50,000 and 70,000 dollars and the cost of adding linked schemes, called CDM program activities or CPA, might be higher than thought.
"The reason why it not be so low is that the validator has a risk involved—the risk increases because he on his own is responsible for approving those projects."
Under U.N. rules, the auditor could eventually became liable for all the carbon credits issued for what is termed a wrongful inclusion of a CPA into the parent programme of activities.
That has made some auditors wary of PoAs but those Reuters spoke to said they now embraced the scheme. "It is often said auditors don't like PoAs because we will be liable. This is complete nonsense," said Stephan Hild, head of international sales at TUV SUD.
A key issue is proving over time that the estimated emissions reductions actually take place, since many programs involve installing cookers, solar panels and heaters as well as compact fluorescent bulbs in people's homes.
Hild said it was unfair to be held liable "for any situation where the content of one piece of paper we use is deviating from the situation of the ground. This is not acceptable," he told a carbon conference in Singapore last week.
Flavio Gomes, global product manager for climate change at auditor Bureau Veritas said while liability worries were valid, costs were perhaps a bigger problem. "The PoA validation is becoming more expensive than the traditional CDM. It is not supposed to be the case," he told Reuters.
"It's learning by doing, but someone has to pay the bill."
editor: David Fogarty (Reuters)
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