More controversy hits the CDM

The agenda for the next meeting of the CDM Executive Board has been posted on the UNFCCC website, and it’s a doozy.

Annex 1 to the agenda is a proposal that would force Designated Operational Entities to become liable for any “excess” CERs that are issued by projects. By “excess” the proposal means any issuances that are found to be incorrect due to factual errors or omissions, or even an entire project that is found to be not additional, again due to factual errors or omissions.

In such cases, the DOE would be required to acquire and surrender to the CDM EB an equivalent number of CERs to the “excess” issuance.

The proposal doesn’t target any particular project type, but you can well imagine that with all the controversy surrounding HFC-23 projects, that people are working out how much it would cost a DOE to buy back all the CERs issued to one of those projects…. I think Point Carbon estimated €150 million just to buy back 20% of all issued HFC-23 CERs.

There are so many problems and issues in this proposal that it will be some time before the EB can come to an agreement and approve it: I’d bet there will be all sorts of changes before it gets any further.

Most importantly, the sort of financial liability that this proposal implies may be simply too much for DOEs, and they may decide to quit the business. Alternately, they may try to pass on the liability for CERs to project owners; if this happens, we can be sure that project owners will not want to part with any CERs until they have some sort of cast-iron guarantee that their project is 110% above-board and there will be no comebacks.

This EB proposal looks like it’s about to stick a spoke in the wheels of the CDM and bring the market (which was already slowing down) to a screeching halt.

1 comment to More controversy hits the CDM

  • Rumour

    Though call! Reminds me a little of the liability on PoAs that has been in discussion some while ago and has been a big hurdle for the early movers. This liability definetily increases transaction costs.

    Looks like the EB is tightening lots of valves right now. I may be right with my issuance bet from earlier…