“The outcome was less concrete than hoped for,” said Niels von Zweigbergk, CEO of Stockholm-based developer Tricorona.

“The Copenhagen Accord contained some compelling elements ... there is the political will to move things forward, but it did not provide the business community with enough certainty to commit capital,” said EcoSecurities’ CEO Paul Kelly. “That will constrain the willingness of anyone to commit capital in the near future.”

The Clean Development Mechanism (CDM) has been successful in mobilising capital to the developing world, attracting around $6.5 billion of direct investment in 2008 alone according to the World Bank, and more than 2,000 projects have been registered under the mechanism since November 2004.

The accord – endorsed by major emitting countries such as the US, Brazil, the EU and China – does not offer any indication of how a post-2012 carbon market will shape up, merely stating that opportunities to use markets will be pursued. But there is no timetable for when a legally binding agreement should be reached, nor even if there should be such an agreement.

“There’s no way anyone can look at that text and say that’s not a disaster,” said David Metcalfe, London-based director of research company Verdantix. “What would have been really good for project developers would have been a strong, legal founding,” such as a pledge for a second commitment period of the Kyoto Protocol or to turn the accord into a new treaty. “It could not have been worse.”

In the longer term, First Climate is “disappointed with the lack of clear commitment to having a legally binding treaty in Mexico”, said the German asset manager’s senior policy analyst Alina Averchenkova, referring to this year’s UN talks.

“The future of carbon markets is no clearer than before Copenhagen,” added Gareth Phillips, chief climate change officer at Sindicatum Carbon Capital (SCC). “Although it’s getting harder to do, we will still try to get our target returns back by the end of 2012.”

SCC’s business model includes revenues from power sales and natural gas sales from CDM projects, rather than relying exclusively on the carbon credits.

But Scott McGregor, London-based CEO of Camco, looked on the positive side. “Virtually all parties wanted it [the CDM] to continue. No one was saying the CDM shouldn’t continue post-2012.” But he also acknowledged that the form of the CDM from 2013 is unclear.

“I believe there will be post-2012 CDM, but I believe there will be lots of other mechanisms in different countries,” McGregor said.

Averchenkova agreed, saying: “We still believe in the carbon market, and the decisions coming out of Copenhagen provide us with enough confidence that market mechanisms are here to stay ... [But] we did not get enough clarity out of Copenhagen to reduce the risk.”

However, Phillips said that parties, such as the EU, “need to be pragmatic about what they want”. For example, the EU has expressed a desire to accept credits from sectoral mechanisms from 2015, but as yet there is no definition of such a mechanism, he said.

Tricorona’s von Zweigbergk said that there is a risk that a global carbon market will not materialise and instead there will be a patchwork of regional and national trading programmes, such as those in the EU, Australia and the US, that may accept CDM credits.

Metcalfe from Verdantix said that Copenhagen “really signalled the end of the UN as the primary negotiating forum” and that he doesn’t expect any “substantial climate policy” to be agreed in that forum in the next five years. “It’s really going to be national carbon markets, or regional like the EU,” he added.

McGregor was optimistic on future prospects. “There’s no dispute that every country in the world has policy initiatives in place to reduce emissions,” the Camco chief said. “There’s no doubt, over the next 10, 20, 30 years that there will be a massive amount of emission reductions in lots of countries.”

EcoSecurities’ Kelly said that the US is the “overhang on the global market”, and that he was not overly optimistic that the necessary legislation to establish a federal cap-and-trade regime would be passed this year. For project developers, he said the key thing this year would be to focus on monetising existing carbon credit portfolios “and watch the bottom line”. However, the company will continue to explore options for the post-2012 period, he added.


Source: www.carbon-financeonline.com