From: Reuters
Published February 26, 2008 03:21 PM

U.N. panel mulls carbon rule tweak to curb profits

LONDON (Reuters) - A U.N. panel which supervises trade in carbon offsets under the Kyoto Protocol is probing tweaks to the rules as there is evidence of attempts to make excessive profits, its vice-chair Lex de Jonge said.

Rich countries can meet their binding caps on greenhouse gas emissions by funding emissions cuts in developing countries under the Kyoto Protocol's clean development mechanism (CDM) through a currency of carbon offsets.

The scheme has attracted speculators who establish projects in developing countries to generate offsets and then sell these on to companies and countries in the West.

Some participants were excessively focused on profits, straying from CDM rules in the process, said de Jonge, who is also a Dutch environment ministry official.

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"This is a billion-euro market and attracts people not only interested in the environment but in the money," he said on Tuesday, citing as evidence the 12 percent of 284 project applications which the panel had rejected since April 2007.

"They have fundamental flaws."

The panel tests whether emissions cuts only happened because of the CDM scheme, meaning that the offsets sold as a result had real environmental value.

The two main tests are whether the scheme either removed barriers such as a lack of awareness of "green" technologies, or that projects would not have been profitable without the CDM revenues.

Projects which were "very profitable" regardless of CDM revenues were a concern, said de Jonge.

"How credible are these barriers?" he asked a carbon trading conference in London on Tuesday organized by the Institute of Economic Affairs and Marketforce, referring to the case of very profitable projects.

"That's a question the board (judging panel) is working on at the moment," he added.

It was unlikely that very profitable projects would be excluded from the CDM, de Jonge said, but one option was to exclude in some cases new installations that were starting from scratch and so could easily implement the latest technologies.

For example, a steel plant can currently claim offsets for installing kit which improves energy efficiency, thereby cutting emissions of the greenhouse gas carbon dioxide. That could be changed to apply only to existing rather than brand new plants.

The CDM attracted some criticism last year for not delivering additional emissions cuts.

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