Carbon asset management company First Climate has proposed expanding a clean development mechanism (CDM) methodology related to adipic acid plants. But contrary to recent media reports the proposal will not reduce certified emission reduction (CER) supply. Instead, it could actually increase it.First Climate proposed a review of the current methodology outlined by the CDM executive board (EB), under which only adipic acid plants installed before 2005 are eligible to yield CERs. “We are not suggesting modifying the existing supply of CERs. It is not to change what is already being done, but rather to expand the methodology to include new plants built after 2005 to the CDM,” First Climate senior analyst of international climate policy Alina Averchenkova said.
Recent media reports have stated that a revision of the methodology could sharply cut CER supply. Such reports drove the short squeeze on the December 2009 CER contract earlier this week, according to traders. But First Climate disagrees, pointing out that the move will lead to an increase in CER supply, as more projects will be eligible for CDM.
CER issuances from adipic plants installed post-2005 have not been approved in the past because of concerns regarding carbon leakage. “We heard the concerns raised by different stakeholders about this issue and we took those concerns seriously. Therefore, we introduced the safeguards into the methodology from the start,” Averchenkova said.
Under the firm's proposed methodology, the adipic acid will be sold at a price that covers the full cost of production. Any amount of adipic acid sold at a price below the full cost of production will be discounted in the calculation of CERs.
Adipic acid exported to Annex 1 countries is not eligible for CER generation and will be discounted in the calculation of CERs. A safety discount on CERs is introduced to account for the maximum possible leakage that could occur if all other safeguards should fail. Overall, the methodology is conservative, with the safeguards ensuring that only half of the actual emission reductions achieved in new adipic acid facilities are credited.
"We do propose a discount, but only on CERs from chemical plants installed after 2005,” Averchenkova said. “It is in our interest to produce CERs, but it is also in our interest to maintain environmental integrity of the mechanism,” Averchenkova said.
The firm submitted the proposal last year and has since completed numerous regulatory processes under the supervision of the EB. But it was decided last week that the complexity and wide-ranging consequence of the issue meant the board “needed more guidance”, Averchenkova said. Consequently, negotiators meeting at the UN's international climate change talks in Copenhagen this December will attempt to reach a conclusion. “Now it has been lifted to the political level,” she said.But negotiators' packed agenda over the two-week talks could delay the process. “From our perspective, the sooner the better. In the meantime, all the emissions are going unabated and investments that could have been done already have to be delayed until there is some firm resolution on the issue,” Averchenkova said.Source: Argus Media
