Spurned Chinese developers blast U.N. CO2 rulings

BEIJING (Reuters) - Developers behind the 19 Chinese wind and hydropower projects rejected by a U.N.-backed clean energy investment panel have accused the board in charge of making arbitrary and non-transparent rule changes.

Most said they had no choice but to reapply to try to earn internationally tradeable carbon offsets they said were needed to make their projects viable.

At its meeting in Bonn, Germany, at the end of July, the Executive Board running the U.N.'s Clean Development Mechanism (CDM) examined the documentation of 19 Chinese CDM applicants.

The panel said none of them managed to pass muster, even after revisions.

A manager at one of the rejected projects, the Mudanjiang Xiaoguokui wind power plant in northeast China's Heilongjiang province, accused the executive board of moving the goalposts.

"The EB has changed the rules and we didn't know about that when the projects were first proposed," he said.

The CDM encourages investors from industrialized countries to fund clean-energy projects in the developing world by offering carbon credits known as certified emission reductions (CERs). The CERs can then be traded or used to comply with binding Kyoto Protocol emissions targets in rich nations.

China has generated more than half of the CERs so far in the scheme, but it has been widely criticized for exploiting the mechanism and flooding the market with cheap and dubious credits from projects that do little to reduce carbon dioxide emissions.

Chinese applicants have also been accused of deliberately under-reporting tariffs paid for renewable power in order to pass the CDM's tough "additionality" test, designed to ensure that projects would only be viable if they receive CERs.

UNDER PRESSURE

The board, which has been under pressure to get tough on "sub-prime carbon," stripped 10 Chinese wind farms of CDM financing at the end of last year, prompting angry reactions from Chinese officials.

Lian Xingtan, chairman of the Shuanghekou hydropower project in Chongqing in southwest China, said the EB's standards were unrealistic.

"Their standards are totally divorced from reality. We started our application in 2006 and they use 2006 rates of investment and 2009 power tariffs to make their calculations."

One developer blamed the auditing company responsible for drawing up and submitting the project documentation. U.N.-approved auditors are known in U.N. jargon as "designated operational entities" or DOEs.

But Lucy Deng, technical manager in charge of CDM accreditation with auditors Det Norske Veritas in Beijing, the DOE behind one of the rejected projects, said many of the problems were a matter of bad timing.

"The EB issued an 'information note' saying that if the tariffs for wind and hydro projects in certain provinces exceeded its new benchmark they would be rejected," she said.

"We actually canceled a number of projects when we knew of the decision, but the rejected ones were submitted before the information note was issued."

Despite tougher CDM rules, project managers insisted their projects would not be viable without CDM accreditation.

"Since the project was rejected, our expected return on investment will be cut massively," said Wang Chaofeng, manager of the Nanlinghe hydropower plant in the southwest province of Yunnan.

(Additional reporting by Beijing newsroom, Editing by David Fogarty)