Oslo, 30 June 2010

The inflow of Clean Development Mechanism ( CDM) projects into the validation pipeline has so far withstood the economic crisis and post-2012 uncertainty, according to analysis by Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets. Point Carbon is a Thomson Reuters company. However, whilst the quantity of CDM projects has remained stable over the past two turbulent years, the average size of CDM projects has halved over the same period and the type of CDM project in the pipeline has shifted from mainly industrial gas projects to mainly renewable energy and energy efficiency projects.

To date, the issuance of Certified Emissions Reductions (CERs), generated by CDM projects, is close to 100% of planned volume. This may decline as the number of industrial gas projects, many of which yield greater reductions than projected, also declines. Since 2007, the inflow of industrial gas projects has essentially stopped and been replaced by non-industrial gas projects which tend to underperform in terms of planned volume.

The past two years has also seen a considerable increase in delays in registration and issuance for many CDM projects. On average, it took over 520 days from validation start to registration in 2009, almost double the 276 day average in 2006.  These delays can be mainly attributed to increased scrutiny by the CDM Executive Board (EB) combined with a lack of manpower in the Secretariat and the designated operational entities (DOEs).

According to Kjetil Røine, Manager and author of the report - Get in line - CDM supply trends – “the CDM supply has stood up well against a significant global downturn. However, this situation could change in the longer term if uncertainty remains, combined with the worrying fact that many projects currently being submitted constitute an emptying of developers’ “project backlogs ”. He continued; “new projects could also be affected by macroeconomic instability and tougher CDM regulations pertaining to host countries’ subsidies in the future. So far, however, it seems that post-2012 uncertainty has had limited impact on supply”.

Indeed, by 2020, Røine estimates that CER volumes could be insufficient to meet demand. Point Carbon foresees a cumulative mid-range demand of 4.5bn CERs by the end of 2020, against its supply model estimate of just 3.8bn CERs with current inflow to validation.  Accordingly, the current rate of inflow of CERs would only be sufficient to meet a low-demand scenario in 2020.

“Interestingly, it is the projects that are expected to start issuing CERs by 2012, that will contribute by far the most to the supply towards 2020. Renewal of crediting periods and project performance are two critical factors in this respect”, Røine specifies.

Røine concludes, however, that the growth of specialised CDM consultancies in major developing countries and new host countries, as well as the existence of 5,000 early-stage projects represent “positive signs for future inflow to validation”.

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