"Zombie" CO2 projects on the rise as CDM hits 7,000

by Michael Szabo | Reuters Point Carbon
Tuesday, 9 July 2013 17:30 GMT

An enthusiast dressed as a zombie takes part in the annual Zombie Walk festival in Prague, June 1, 2013. REUTERS/David W Cerny

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LONDON, July 9 (Reuters Point Carbon) – A U.N. programme to channel climate finance to poor nations said it approved its 7,000th greenhouse gas-cutting installation last week, but warnings of “zombie projects” and more companies pulling out of the struggling scheme made the number appear increasingly irrelevant.

The Kyoto Protocol’s Clean Development Mechanism (CDM) hit its latest milestone amid rock-bottom prices for the carbon credits it generates, which have collapsed by more than 95 percent in the past two years due to a mix of swelling supply and a lack of demand.

Valued at around 50 euro cents ($0.64), they give little incentive for project owners to continue shelling out cash to monitor and verify emissions cuts – activities required to receive credits under the scheme.

Alexandre Kossoy, senior financial specialist at the World Bank’s Carbon Finance Unit, said this has led some owners to stop participating in the CDM despite their installations being registered under it.

“It’s not surprising. We knew about it but ... we haven’t measured how many because it would take months to go project by project,” he said at a conference in Barcelona in late May.

Stefan Winter, deputy head of certification at CDM auditors Tuv Nord, called them “zombie projects” and said in extreme cases some installations that rely solely on revenues from selling carbon credits had shut down completely.

Speaking on the sidelines of the same conference, he said Tuv Nord, an approved verifier of emissions reductions under the CDM, was attempting to confirm with clients the operational status of nearly 150 of the projects it has previously monitored.

“We’ve received no info from these projects and are unable to contact the clients by phone or email,” he said, adding that while it was mainly Indian project owners that were unreachable, at least five Chinese developer firms had also closed or vanished.

Owners of more than half the roughly 230 Indian projects in Tuv Nord’s verification portfolio failed to respond to requests, on top of another 10 percent of its 60-80 China-based clients, Winter said.

“We don’t deny that this is happening to a number of projects but this is an issue related to demand, and that is out of our hands,” said Peer Stiansen, chair of the board that oversees the CDM, at U.N. climate talks in Bonn last month.

Demand for the credits has been dented by recession in the EU, home to the world’s largest offset buyers, while dithering by countries over crafting a new climate deal to succeed Kyoto has prevented any new appetite from materialising.


U.N. data showed that just 2,400, or 34 percent, of the 7,000 projects registered under the CDM have ever applied for credits, with a quarter of those installations having not been issued with any in the past year.

Credit issuances have plummeted since peaking at 62 million units in March, with just 12.5 million expected to be handed out this month, the data showed, reflecting the fact that the costs involved in receiving credits continues to outweigh the potential proceeds from selling them.

"The problem is when projects stop monitoring (their emissions cuts), those (credits) are completely lost," Kossoy said.

He added that along with the declining requests, information on the projects’ activities is becoming harder to find as “the (owners) who have decommissioned projects don’t want to say so, and the ones who haven’t also don’t want to say.”

Regardless, he said that many CO2-cutting projects registered under the CDM “will survive without it" as they have other sources of revenue, for example from selling power.

But this appeared to contradict one of the guiding principles of the CDM - that projects should not be approved if they are not "additional", or in other words they are viable without the proceeds from selling carbon credits.

“For most, getting (credits) is the cherry on top of the cake,” Kossoy added.

(Additional reporting by Susanna Twidale)

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