UPDATE 1-China dominates, Africa emerges in carbon market

(Adds details, quotes)

By Michael Szabo

COLOGNE, May 7 (Reuters) - For a third year running China was the dominant source of greenhouse gas emissions cuts under a U.N.-run offsetting scheme, while Africa started to emerge as a viable market in 2007, the World Bank said on Wednesday.

China accounted for 73 percent of deals done under the Kyoto Protocol's Clean Development Mechanism (CDM) in 2007 while Africa, which has largely been absent in the carbon trade, made up some 5 percent of offset sales last year. [ID:nL07301018]

The $13 billion CDM market allows rich nations to invest in clean energy projects in developing countries and in return receive offsets called CERs which they can sell for profit or use to meet emissions targets under the Kyoto Protocol.

"Countries in Africa ... emerged in the carbon market and offered buyers an opportunity to diversify their China-overweight portfolios," the World Bank report said, citing Kenya, Uganda and Nigeria as the main movers in 2007.

"African countries are arriving a bit later than other countries, but there are more and more projects," said Joelle Chassard, manager for the World Bank's Carbon Finance Unit, which runs several funds that invest in CDM projects. "At the moment, about 17 percent of our operations are in Africa."

Although CDM activity in Africa grew significantly last year, investors still see more room for improvement.

"There will be more growth (in Africa) as soon as countries have established good, working DNA's (governmental CDM project-approval agencies) ... and a corruption-free environment," Michael Fubi, vice-president of climate proection for German utility RWE (RWEG.DE: Quote, Profile, Research), told Reuters.