SINGAPORE - A multi-billion dollar scheme driving clean-energy investment in poorer nations is faltering and urgently needs reforms mandated by negotiators at this month's U.N. climate talks, a report released on Friday said.
The International Emissions Trading Association said the scheme, called the Clean Development Mechanism, has proved a great success but was now a victim of poor management, delays and conflicting rulings that was stifling investment.
Given the current economic climate, the CDM's enduring lack of predictability and consistency is causing investors to pull back, quickly, IETA said in the report, State of the CDM 2009.
Uncertainty over the post-2012 framework has only hastened this retreat, it said, adding that the CDM, as it is, is barely working for us anymore.
The CDM allows investors from rich nations to develop clean-energy projects, such as wind farms, in poorer countries and earn carbon offsets in return that can be sold for profit or used to meet mandatory emissions targets.
According to U.N. data as of Thursday, 1,920 CDM projects have been formally approved and registered and more than 355 million offsets called CERs have been issued. The CERs are currently trading above 12 euros ($18) in Europe, the main buyer.
The CDM, part of the U.N.'s Kyoto Protocol climate pact, though, has suffered from increasing uncertainty over its future shape and function after 2012, when Kyoto's first phase ends.
Such worries are undermining demand for CERs from projects after 2012.
Negotiators and government leaders are meeting in the Danish capital Copenhagen from Monday till Dec 18 to try to agree on the outlines of a broader agreement to expand or replace Kyoto from 2013. Reform of the CDM is a critical issue, IETA said.
A key issue is the project-by-project approval process that takes up to two years and involves time-consuming requests for review or corrections to project design, among other issues. This needed streamlining, IETA said.
It said there was a need to expand the CDM's reach to much broader deployment in developing countries.
It also called for Copenhagen to ensure long-term investment security by declaring eligibility for full (offset) crediting post-2012 for projects registered in host-countries or sectors before they move to a sectoral crediting mechanism.
Europe, for instance, wants the CDM to shift to driving emissions reductions across industrial sectors in poorer nations.
IETA also called for nations meeting in Copenhagen to expand CDM eligibility to carbon capture and storage projects.
The association pointed to lack of CDM staff, the need for more expertise, unclear rulings, lack of an appeal process and inadequate standardization of CDM processes that were also among issues frustrating investors.
IETA said the CDM's main policy-making and technical bodies functioned on a part-time basis, severely limiting the amount of time spent taking decisions or resetting policy.
The CDM exhibits a glaring neglect of administrative due process rules to ensure basic procedural fairness, which reflects a fundamental flaw in its governance, it added.
In response, IETA proposed appointing an outside body to drive reforms and suggested nations meeting in Copenhagen create a steering committee to push through changes.
It also suggested engaging independent regulatory consultants to guide the reform agenda and urged officials at Copenhagen to push for an end to project-by-project reviews.
IETA recommended the hiring of a CDM managing director, make the project methodology panel into a full-time, permanent body, expand its mandate, improve training of staff and raise salaries.
(Reporting by David Fogarty; Editing by Bill Tarrant)