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Project-based credits – both from Clean Development Mechanisms (CDM) and Joint Implementation (JI) projects – will play a key role in governments’ compliance of their Kyoto Protocol targets, and installations’ compliance with their emissions goals under the EU Emissions Trading Scheme. At present, this role is dominated by credits generated by CDM projects in Asia – particularly in China which accounts for 70% of the credits generated – whilst the JI pipeline is at the moment considerably smaller.
Preparation for JI has been ongoing for a number of years. While the CDM rules were largely in place by the end of 2001 and projects were generating reductions shortly thereafter, the rules for JI were only finalised in 2004. Indeed, JI projects are only eligible to generate emission reduction units from 2008, the beginning of the Kyoto target period, whereas CDM projects can, in principle, claim credits from 2000.
However, the finalisation of the first project determination under the JI mechanism at the end of March 2007 is the long-awaited signal that the mechanism is now up and running. The JI mechanism will provide companies with additional (carbon) financing possibilities and will play an important role in the diversification and optimisation of the carbon portfolios of governments, compliance companies and financial investors. Most portfolios are currently heavily skewed towards credits generated out of Asia. JI, with the majority of projects located in Eastern Europe and the CIS, will diversify portfolios and reduce the risk of carbon investing. Diversification of the regional and technological risks is crucial to encouraging investment in the market.
Russia has enormous potential to benefit from the opportunities offered by the Kyoto Protocol. Carbon Trade & Finance, together with the complementary strengths of its shareholders Gazprombank and Commerzbank Corporates & Markets, can offer clients unrivalled expertise in order to benefit from opportunities in the carbon market.
