24 June 2008
LONDON (Dow Jones)--IDEAcarbon is Wednesday launching the world's first independent carbon credits ratings service that will provide detailed credit ratings for carbon offset projects under the U.N.'s clean development mechanism, joint implementation projects and in the voluntary markets.
The Carbon Ratings Agency will help to standardize carbon as a commodity and create a new asset class of carbon offsets, or credits, as investors will be able to evaluate rated projects around the world by the same yardstick and select projects most likely to deliver the number of carbon credits projected by the developer.
"If we are to attract the levels of finance necessary to make this a mainstream market and have a strong impact on emissions reductions, risks must be clearly understood, articulated and managed," said Nicholas Stern, vice chairman of the IDEAglobal Group and the economist whose 2006 report on climate change helped galvanize world leaders behind the green movement.
IDEAcarbon forecasts the carbon trading market could reach EUR1 trillion by 2020 with project based carbon offsets contributing at least EUR200 billion if transparency and risk management is improved in the market.
Last year, trade in the global carbon market doubled to EUR40 billion.
"Carbon projects are risky and until recently these risks have been underestimated. But the analysis also highlights the enormous potential in this market," said Ian Johnson, chair of IDEAcarbon and former World Bank vice president for sustainable development.
Each carbon offset asset will be given a rating based on analysis of the project and an assessment of the likelihood of it delivering its stated emissions reduction in the stated period.
Like credit ratings agencies, the new service will award scores ranging from "AAA" for the highest quality, lowest-risk projects, through to "C" and "D" for the highest-risk projects.
The ratings agency is to be launched at the London Stock Exchange and is the dedicated ratings subsidiary of IDEAcarbon - an independent provider of ratings, research and strategic advice on carbon finance.
The rating will combine statistical benchmarking with collective best judgment of the agency's ratings committee.
Under the U.N.-led Clean Development Mechanism, which was set up as part of the Kyoto Protocol in 1997 and came into force in 2005, clean energy projects in the developing world are rewarded with tradable carbon credits.
European companies can buy these credits and use them to offset their emissions and meet some of their obligations under the European Union Emissions Trading Scheme.
Under Joint Implementation, another Kyoto Protocol mechanism that works like the CDM, rich countries can invest in clean energy projects in former communist countries for credits.
Voluntary carbon offsets allow companies to buy credits from projects that reduce the amount of greenhouse gases. This voluntary market is separate from the obligatory emissions market like the E.U. ETS.