On Thursday, China’s planning ministry said that by 2015 the country should add 140 GW of hydropower capacity, up from 200 GW at present.

Although the government did not set out a target for wind, it has indicated previously that it wants to treble the amount of wind power to 90 MW from 30 MW at the end of 2009.

Given that wind and hydro in China are already a significant source of supply of carbon credits - they account for around 5 per cent of offsets issued so far – in theory a major expansion of renewables capacity in Asia’s largest economy should be a major boon for project developers.

But supply of CERs from wind and hydro projects registered after 2012 could be very limited because of executive board  decisions, observers said.

In recent years, the board – the UN panel appointed to adjudicate on CDM projects – has used tariff levels as the basis of decisions to cut the supply of credits that Chinese wind and hydro projects are eligible to earn.

In some cases it has delayed the registration of projects and even rejected some all together.

“The Chinese government is likely to use tariffs in order to meet these targets, and the extent to which the tariff level would make CDM projects ineligible will be decided on a case-by-case basis by the executive board,” said Gareth Phillips of Sindicatum Carbon Capital, who is chair of the CDM Project Developers Forum.

Paradoxically, if the central government used command-and-control laws and regulations to enforce a renewable target rather than inducements such as tariffs, then projects would still be eligible, said Axel Michaelowa, a CDM consultant with Perspectives, which is owned by Thomson Reuters.

Under the rules of the CDM, projects can still qualify for credits even if the government of a host country makes a law promoting a particular technology.

“Only changes in renewable feed-in-tariffs have impacts on additionality,” Michaelowa said.

Mischa Classen, a consultant with project developer First Climate, said that the board has already deviated from previous policies.

“Thus the board has decreased the security for investment and dampens the appetite to implement CDM projects,” he added.

However, in any case, the attraction of wind and hydro projects that will be registered after 2012 has dimmed sharply ever since the EU said it would place restrictions on the eligibility of future projects.

Under these restrictions projects registered after 2012 in large developing economies cannot supply the third phase of the emissions trading scheme unless a bilateral agreement is in place.

Investors are looking increasingly to least developed countries or nations that are likely to benefit from bilateral offset deals with the EU rather than China for projects that enter the pipeline after 2012.

By John McGarrity - jm@pointcarbon.com

London