Companies investing in environmentally sound energy projects in developing countries can expect to start reaping rewards under the Kyoto protocol, as the first “carbon credits” are set to be issued on Thursday.
The development will boost the supporters of the United Nations-brokered treaty on climate change, who are facing tough negotiations at a meeting to discuss its future in Montreal next month.
The US, which has not ratified the treaty, wants to block discussions on its next phase after the current provisions expire in 2012, while developing countries want to avoid any obligation to reduce their greenhouse gas emissions after that date.
Klaus Töpfer, executive director of the UN environment programme, acknowledged that the meeting would be difficult but added: “Luckily, we can now talk about negotiations beyond Kyoto, not instead of Kyoto. That is very important.”
Two projects in Honduras and one in India, financed by donors in Finland, the Netherlands and Italy, are expected to receive the world's first “certified emissions reductions” on Thursday. Such projects benefit companies involved, as they can be offset against requirements on companies to reduce their greenhouse gas output in developed countries.
For instance, they could be used by companies covered by the European Union's greenhouse gas emissions trading scheme, which values carbon dioxide at about €23 ($27, £16) a tonne.
The expected issuance of credits brings into practical effect one of the key provisions of the protocol, called the “clean development mechanism”. This is designed to encourage the transfer of “low carbon” technology, such as renewable energy, to developing countries which could not otherwise afford it.
The projects are funded by rich nations, which are obliged by the treaty to reduce their greenhouse gas emissions. When a project has been shown to work, the greenhouse gas emissions thus avoided will be credited to the developed country's account in the reckoning of whether countries have hit their targets in 2012.
More than 20 other projects are awaiting the issue of their carbon credits under the treaty, with dozens more in the pipeline at earlier stages of approval.
Point Carbon, an analyst company, estimates that the market in carbon credits will be worth $450m (€375m, £255m) this year, and will grow to $23bn in five years. Many companies have begun to enter the market.
On Wednesday, Natsource Asset Management announced it had received commitments of €455m from 26 companies, including Repsol, Eon UK, Norsk Hydro and Endesa. These would go to a pooled fund aimed at generating carbon credits companies can use to fulfil their emissions reduction obligations, under the EU carbon trading scheme and similar requirements enforced by the Canadian and Japanese governments.
However, companies involved in clean development mechanism projects have complained that the process is too bureaucratic.