In addition to cost, sources claim developers see the voluntary market as a way to develop smaller scale projects and tap into fast-growing demand from the US voluntary market.

“The more flexible and less competitive voluntary markets open a window of opportunity for projects in Latin America,” said Pablo Obrador Álvarez, a CDM/JI project manager at consulting firm 3C Group. “It is a matter of time that Latin America sees the voluntary markets as a chance to enhance its value added in the carbon markets.”

Obrador explained that over the past several months, he has observed that some clean development mechanism (CDM) project developers from Latin American and Caribbean (LAC) countries have started to look for VERs within their portfolios.

He said that VERs have great potential as an alternative to CDM in the region because Latin America is “increasingly becoming unattractive for the CDM market” due to its small project volumes and a slow project negotiation processes compared to China, India and other Asian countries.

Obrador observed that the voluntary markets are already creating an opportunity for project developers to get some benefits of pre-registration carbon credits streams. The number of projects qualified to earn CERs but earning VERs before the starting date of the crediting period is on the rise, he said.

Some market participants see the voluntary markets as an opportunity for small projects that are not able to cover the high transaction costs associated with the CDM registration and for projects, such as forestry, that are not covered by the CDM .

Diego Arrigorriaga, a technical advisor for CDM projects at brokerage Cantor CO2e, said that VERs are more flexible and can accommodate smaller projects, which are more common in Latin America. These projects are usually too small to justify CDM transaction and methodology costs, he added.

“The cost of approval of a methodology goes from $35,000 to $100,000, and takes between four months and two years,” said Arrigorriaga. “For some projects, that’s just not worth it.”

Some observe that it is not only the cost of CDM registration that could drive developers toward VERs, but the stringent registration process itself.

Eduardo Reyes, the deputy administrator general of Panama’s National Environment Authority, suggested that the rigid nature of the registration process through the CDM’s executive board may begin to drive a shift in the region away from CDM toward VERs.

“In the cases [of developers] I know looking for VERs, they first tried to get EB approval for the CDM project,” he said. “If the project is rejected -- especially due to the lack of methodology -- they go for VERs.”

Other projects that are not included in the CDM also create an opportunity for VERs in the region. In particular, there is ample opportunity for more projects related to forestry – afforestation, reforestation and avoided deforestation – which has great potential in the region, market players said.

“From what I have seen, the primary players on the supply side have been projects which for some reason or another, did not fit well into the Kyoto regime, such as forestry projects,” said Jorge Barrigh, managing director of transaction services of Latin America and Caribbean at Natsource.

“I think the VER market is of interest in LAC because there are underserved and underrepresented sectors under CDM that can benefit from environmental transactions in this market,” he said.

Interest up north

The fast-growing voluntary market in the US is also providing an opportunity for VERs in the neighbouring LAC region. According to a report by Ecosystem Marketplace and New Carbon Finance, 2006 was a year of record volumes for the voluntary carbon markets, with volume on the voluntary Chicago Climate Change growing by 610 per cent.

“Due to the regional proximity and economic interest in the region, American buyers have a clearly preference for VERs coming from projects in Latin American countries,” said Obrador.

In addition to geographic proximity, Jason Patrick, director of GHG markets at broker Evolution Markets, said that the LAC region provides US buyers with geographic diversification in their portfolios.

“Today, many buyers want to buy elsewhere [other than Asia] to diversify their geographic risk,” Patrick said at an industry conference in Lima last week. He added that the region is especially attractive because many of the project types in the region tend to be renewable energy projects.

Despite the potential for VERs in the region, Latin America still lags behind Asia in terms of project development.

“While Indian project developers have sold large amounts of VERs during 2006 and 2007, the largest Latin American CDM project developers started to look for VERs within their portfolios only during the last couple of months,” said Obrador.

Barrigh added that though the upswing in VERs in the region has not been as dramatic, the trend could change swiftly.

“Stay tuned since seeking attractive spaces defines market development – and this market is developing in unprecedented ways,” he said.

Washington DC/Lima