Germany Wants Aid for Emission-Cutting Projects in Poor Countries

Germany is advancing plans for rich countries to encourage the developing world to cut greenhouse gas emissions by subsidising projects, replacing the funding after a United Nations programme has run out of cash.

Such a move could yield cuts of around 5 percent of the gap between current government pledges and the amount needed by 2020 to prevent climate change that would lead to rising seas, droughts and flooding.

It also could throw a lifeline to owners of those projects that would destroy particularly potent industrial gases who are unwilling to pay for the measures themselves and do not expect their host countries to introduce regulations for years.

"Some of the cheapest options available for cutting emissions are at a real risk of stopping for purely political reasons," said Silke Karcher, an official at Germany's environment ministry.

"We are now looking at what is politically and financially feasible to act, with money spent wisely and in a way that does not create perverse incentives."

The U.N.'s Clean Development Mechanism (CDM) channelled over $400 billion into projects over the last decade, but the funding has dried up as nations wrangle over a new global deal to tackle climate change.

The CDM drew criticism because most of the money went to wealthier emerging economies such as Brazil and China. Also funding was skewed to a small number of industrial gas projects, which critics said led to no sustainable development, had questionable environmental improvements and could have been achieved more cheaply.

In response, EU nations restricted investment in the CDM to only very poor countries and to projects with wider social benefits such as installing solar power or cleaner cook stoves.

Germany is concerned that even while emerging economies are increasingly taking action to cut emissions, the drop in CDM support could leave projects that destroy highly warming HFC-23, adipic and nitric acid emissions at risk of being abandoned before a global climate regime starts in 2020.

Industrial gas projects have generated 54 percent of the 1.4 billion credits issued under the CDM to date, Thomson Reuters Point Carbon data shows.

An Oeko-Institut study commissioned by Germany found that additional funding for CDM projects and others outside the CDM could prevent emissions of 800 million tonnes by 2020 at an average cost of 0.47 euros a tonne of carbon dioxide equivalent.


Low-Cost Cuts
The CDM allows investors to earn carbon credits they can sell to companies and governments of richer nations that use them to help meet emission targets. But issuance of the credits has dwindled as prices have crashed from above 20 euros a tonne ($27.28) to less than 0.20 euros in six years.

Many of the 37 CDM projects have stopped at nitric acid factories owned by British firm Johnson Matthey (JMPLY), said Garry Crooks, a sales and marketing manager for the company.

He said just one Chinese project continued to verify emission cuts under the CDM and that "quite a few" others were still running in the hope of securing funding to cover costs of around 2 euros per tonne.

Owners are wary of disclosing their projects' status, said Carsten Warnecke of consultancy Ecofys, which Germany has commissioned alongside auditor TUV SUD to survey so-called "zombie" projects that were registered with the CDM but never applied for credits.

Only a third of the 7,789 registered CDM projects have applied for credits, Thomson Reuters Point Carbon data shows.

Without CDM revenue, industrial gas projects are less likely than many schemes to abate emissions, because they do not lead to other sources of revenue such as selling electricity.

The Oeko report suggested that HFC-23 could be regulated under the U.N.'s Montreal Protocol, including possible financing from richer nations under its multilateral fund.

For adipic and nitric acid programmes, the report said developed nations individually or collectively could agree on a price to pay for emission cuts via the CDM, without expecting to use any credits to meet the donor countries' emission targets.

Alternatively, funding could be channelled through an expansion of the World Bank's Auctioning Facility, which is due to launch later this year to buy credits from projects that cut methane emissions at landfill waste sites.

($1 = 0.7331 euros)

(By Ben Garside, editing by Jane Baird)