Carbon time bomb (source: GuenterHH)

The carbon markets have had a troubled few weeks. While the price of the world’s most popular and valuable carbon product, the European Union Emissions Trading Scheme allowance, shed some 22% in one week, the Australian government has finally announced a potential path for the country to join the small group of emissions trading nations.

At the same time, the United Nations’ Clean Development Mechanism (CDM) is in a period of transition (see Climatico post): policy decisions made by its regulators could have significant impacts on the ability of the mechanism to deliver useable and robust offsets (called Certified Emission Reductions – CERs).

Superseded supercritical?

One particularly interesting issue has been focussed on the CDM Methodology Panel, who is charged (among other tasks) with maintaining the methods that are used to calculate how many equivalent tonnes of CO2 (CERs) are mitigated from projects. The panel recommended to the CDM’s regulatory body, the Executive Board, that one methodology based on supercritical coal plants should be placed on hold since it could potentially overestimate emission reductions/CER generation by some 25% on average (pdf here).

Green groups have long argued that fossil fuel based projects breach CDM criteria. On the other hand, the EB consider that since supercritical coal plants are more efficient, and thus emit less carbon, they should be able to qualify for CERs.

Following the panel’s recommendation to pause the methodology, the EB was split on how to proceed with the decision. Despite uncertainties, the EB registered another supercritical coal project and eventually decided not to follow through with a suspension, yet.

Blast from the past

While none of the five registered supercritical coal projects have yet issued any credits, the situation is reminiscent of other methodological problems.

Only recently have CDM methodologies been centre of a controversial debate: doubts surrounding CDM projects based on the destruction of industrial gases (HFC and N2O) (see Climatico post) shook the CDM community. One of the results of the debate was that the largest demand source of CERs, the EU ETS, placed a ban from 2013 on the use of CERs from these projects for compliance.

With 39 supercritical coal projects within the CDM pipeline at various stages of development, a decision to reject the suspension request could become the next controversy in the CDM. One of the main groups scrutinising the announcements from the EB has been European NGO, CDM-Watch, who expressed fears that the new decision was politically motivated.

Green groups had successes in the HFC/N2O debate. Even if the EB continues to allow supercritical coal projects in the CDM, there is a risk that the issue could grow into something bigger and out of their control. Instead of targeting the supply of CERs, groups may want to aim for changes in the demand side, which is equally important in the development of the CDM.

Following some poor 2010 growth results, the EB will want to decide carefully if they mean to prolong the longevity of the world’s largest international offset mechanism.

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