International talks target price floor for U.N. carbon offsets

WARSAW Mon Nov 18, 2013 10:14pm IST

WARSAW Nov 18 (Reuters) - International negotiators want countries to set a price floor for carbon offsets to help revive the United Nations' ailing Clean Development Mechanism (CDM), which has channelled more than $315 billion in climate finance to developing countries, a draft text showed on Monday.

The text, which will be discussed this week during the high-level segment of Nov. 11-22 climate talks in Warsaw, "encourages parties to establish a pricing regulation mechanism enabling the application of a floor price for certified emission reductions (CERs)", the credits traded under the CDM.

The CDM lets investors in carbon-cutting projects built in developing nations earn offsets that governments and firms can use to meet their own emissions goals in a more cost-effective way.

However, demand for CERs has dried up and prices have crashed by 95 percent to below 50 cents following the failure of developed nations to take on deeper emissions targets under a new global treaty.

This led countries to launch a year-long consultation in 2012 on how to fix the CDM.

The draft text did not suggest what the floor price should be but analysts have said the cheapest projects to implement, such as tidal power schemes, can cost as little as 60 euro cents per tonne of abated carbon dioxide (CO2).

More expensive schemes, such as those that distribute efficient light bulbs to households, can cost more than 2.25 euros per tonne of CO2.

Jeff Swartz of the carbon market lobby group the International Emissions Trading Association said a minimum price would not be a quick fix to revive the CDM.

"Setting a floor price will not change the fundamentals of the market - in fact it will just create confusion among investors and raise questions about the (CER purchase agreements) that are currently under discussion," he said.

Meanwhile, a source close to the negotiations who requested anonymity said the proposal was unlikely to be approved because it would be too difficult to agree a minimum price and implement it.

Negotiators in Warsaw are trying to advance work towards a new global climate pact to be agreed in 2015 and come into force after 2020.

China, which hosts more than 50 percent of the 7,400 CDM projects registered to date, has already imposed an unofficial minimum CER sale price of 7 euros ($9.47).

However, traders say it has little bearing on the market because most developers have varying floor prices set in their purchase agreements. (Reporting By Susanna Twidale and Michael Szabo; Editing by Kevin Liffey)

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