Risk ratings for carbon offset projects

A carbon credit rating service modelled on financial risk rating systems aims to bring greater clarity to the global carbon offset market.

The system will be unveiled next Wednesday by IDEAcarbon, a subsidiary of financial research firm IDEAglobal, of which Lord Stern is vice chairman.

An IDEAcarbon spokeswoman refused to be drawn on details, but the service is expected to award debt-style AAA ratings for projects most likely to deliver projected emission reductions. The riskiest projects will be given "junk" ratings.

The service comes amid growing fears that many projects managed under the UN's Clean Development Mechanism (CDM) are failing to deliver the expected flow of credits.

Two-thirds of CDM-approved projects are thought to be running late or failing to deliver the expected quantity of credits.

IDEAcarbon said that the service would bring greater transparency to the offsetting market, encouraging more investment in the sector.

Edward Hanrahan of recently formed carbon offset trade association ICROA welcomed the service, although he insisted that similar risk assessments were already being undertaken by many operators.

"It sounds as if it will be similar to the risk assessment tools offered by [research firm] Point Carbon and many of the offset providers," Hanrahan said.

"But these tools are definitely all welcome as they allow investors – such as hedge funds and other institutional investors who are less experienced in the carbon sector – to measure the risk of their investments."