Climate finance practitioners and regulators have urged South African developers of Clean Development Mechanism (CDM) projects to finalise their applications for registration of such projects with the United Nations during the first quarter of 2012, or face being excluded from the key European market.
Addressing potential developers and consultants at a Green Power Conferences event in Johannesburg on Tuesday, Carbon Check CEO Adam Simcock cautioned that, unless projects were submitted by May, prospects were slim for beating a December 31 cut-off for access to the European Union’s (EU’s) emissions trading scheme. Simcock heads Africa’s only designated operational entity, an independent auditor accredited by the United Nations Framework Convention on Climate Changes’ (UNFCCC’s) CDM executive board, which itself supervises the Kyoto Protocol mechanism.
Despite an agreement in Durban last month to extend the Kyoto Protocol beyond 2012, the procedures and modalities for this second commitment period were yet to be developed and it was also uncertain whether the new period would run until 2017, or 2020.
Negotiators at the seventeenth Conference of the Parties, or COP 17, agreed that there would be a deal with legal standing by 2015 to curtail greenhouse-gas emissions, which would be implemented from 2020.
But the EU, the dominant market currently for carbon credits, had already confirmed that it would accept credits only from registered projects from least developed countries after 2012.
Therefore, while the market for such credits had been preserved through the COP 17 outcome, no new South African projects would be registered after 2012, unless the country was able to finalise a bilateral agreement with the EU to ensure continued access.
South Africa’s Designated National Authority, which assesses domestic CDM projects before submission to the CDM executive board for registration, indicated it would seek to ensure approval processes were managed efficiently.
But Department of Energy (DoE) deputy director Takalani Rambau warned that it was unlikely that the 45-working-day approval period would be materially shortened, owing to the fact that South African legislation stipulated a 30-day public comment period, which left only 15 days to obtain multidepartment steering committee sanction and final approval from the DoE director-general.
Currently, South Africa has 21 registered CDM projects and a project pipeline involving some 270 potential developments. Many of the new South African application fall under the CDM’s Programme of Activities (PoAs), which allowed for a number of small projects to be registered as a single CDM if it could be proven that the initiatives would lower emissions against a verified baseline.
However, South Africa and Africa remained marginal users of the mechanism. In fact, Africa had only 2.12% of the 3 776 CDM projects registered globally and just 1.3% of total Certified Emission Reductions (CERs), or credits, in issuance.
But the “dash” to register CDM projects also came amid material pressure on the carbon price, with the EU Allowance Unit (EUA), the world’s main carbon credit for one ton of carbon dioxide, having slumped. During 2010, the price of EUAs halved to end the year at €6.90. The price had not recovered significantly this year and the forward price curve to 2020 was showing a further decrease to €4.
Standard Bank’s head of carbon trading Geoff Sinclair warned that the prices were unlikely to recover in the short-term, owing to the fact the fall in European industrial production was driving a reduced demand for EUAs, placing downward pressure on both EUAs and CERs. But he expected some recovery in the latter half of 2012.
“There has been a demand-side shock in Europe . . . and there has not yet been a supply-side adjustment,” Sinclair explained.
Sinclair’s comments came on the same day that the Carbon Market Investors Association called on the EU to hold back some EUAs to help shore up carbon prices. Consideration was reportedly being given in the EU to the introduction of supply reduction measures, but that would require the approval of the European Parliament.
Ecometrix MD Henk Sa indicated that he foresaw the evolution, between now and 2015, of multiple regional or country markets, which would be complex and far less transparent.
“But these markets are unlikely to be mutually exclusive. So there could be a situation where, if I have 100 carbon credits, it makes sense to sell 50 to the EU and 25 into the Californian system and sell another 25 into the Australian system,” he outlined.
But for South African projects to access the EU trading system they would need to be registered by year-end.
In the meantime, the UNFCC’s Ariesta Ningrum stressed that work would be undertaken during 2012 to firm up the rules that would be in operation for the second commitment period of the Kyoto Protocol.
But she, too, expected that other markets, such as bilaterals and new domestic markets, would emerge and would coexist with the CDM programme.
Ningrum also stressed that several recent developments could be considered favourable for the development of CDM projects in Africa, when the potential existed for the deployment of some 3 200 clean-energy projects.
Recent clarifications and simplifications to the rules for PoAs should also be advantageous to African projects, she concluded.