UN warns carbon market could collapse

The emerging global carbon market received a dual blow yesterday after the UN warned the sector could collapse without progress at next month's Bali conference and one of the biggest developers of carbon offset credits cut its product pipeline by a fifth.

Speaking at the Carbon Forum in Asia, the UN's top climate change official Yvo de Boer warned that without a post-2012 international agreement to replace the Kyoto Protocol, the carbon trading market "could disappear more quickly than it appeared".

He added that progress at the UN conference on climate change in Bali next month was essential if an agreement was to be in place by 2012, insisting that as a bare minimum the negotiations had to be formally launched and a timetable for further talks agreed.

Trevor Sikorski, director of carbon market analysts Point Carbon, agreed that without real progess there was a danger the fast-growing market, estimated to be worth $60bn this year, would collapse post-2012.

"Europe has said its ETS [Emissions Trading Scheme] would keep going without a post-Kyoto agreement, but without an agreement we'd still see a massive reduction of interest in the market," he said.

De Boer's warning came as carbon credit provider EcoSecurities revealed that a bottleneck in the UN Clean Development Mechanism (CDM) process for accrediting carbon reduction projects meant it would not be able to generate as many Certified Emission Reduction (CER) credits as originally expected.

The company's share price fell 47 per cent on the news as the company also warned that annual sales and earnings would be lower than expected.

Bruce Usher, chief executive at the company, said that the CDM registration and issuance process – which assesses whether carbon reduction projects meet the UN's environmental standards and deliver genuine cuts in carbon emissions – had slowed down and was impacting the flow of new carbon credits into the market.

"We are seeking to mitigate the impact of these delays wherever possible by, for example, selling pre-registration credits into the VER market," he added.

The company said that it would also be expressing its concerns about the CDM approval process via national governments, industry forums and the forthcoming conference in Bali.

However, Sikorski warned that while some improvements in the accreditation process were likely, the firms running carbon reduction projects may have to get used to a lengthy certification process if they want CDM approval.

"The executive board [for accrediting CDM projects] is dealing with a wide range of different projects and it has to be very thorough because if just a few weak projects were approved, that would undermine the whole market – that means the process will be inherently slow," he explained.