Climate paralysis

Post-2012 uncertainty is hampering investment in small clean energy projects, an ethanol producer has said.

Reberth Machado, executive director of Bioenergia do Brasil, said uncertainty over the future of the clean development mechanism (CDM), combined with the current financial crisis, is jeopardising plans to expand a sugarcane plant that also earns CDM credits.

“The whole market is entering into a panic mode. Nobody knows what is going to happen, therefore nobody is doing anything,” Machado told Point Carbon in an interview.

Machado’s company operates Lucélia, the first sugarcane mill in Brazil to earn credits through the CDM.

Lucélia processes 10,000 tonnes of sugarcane each year from its 28,000 hectare estate, and earns CDM credits from the use of bagasse – the woody residue from the cane crop – to power steam boilers and generate electricity.

This power has been used for the production process at Lucélia since 1981, but from 2002 about half of it has been exported to the grid.


Bioenergia saw the opportunity of gaining credits through the CDM to help finance a more efficient boiler, giving the plant surplus electricity.

It is seeking $30 million to install a new boiler, and to increase the generating capacity at the mill from 12 to 28MW and the power exports from six to 21 MW.

It contracted the project developer and aggregator Ecosecurities to calculate the carbon savings and go through the UN registration procedure, receiving in return the rights to commercialise the certified emission reductions (CERs).

Machado said that the seven-year contract with Ecosecurities was ending this year – and was not going to be renewed, leaving the company unable to earn further credits.


The problem, he said, was that with less than three years left under the Kyoto protocol, the volume of credits produced by the plant – 10,000-15,000 CERs per year – was not sufficient to guarantee recovering the investment in revalidating the project.

“They are killing the small to medium-sized projects, just by not having enough time until 2012 to get the money back, and nobody knows what’s going to happen after 2012,” said Machado.

“For the new plant, it is just that much more difficult to attract investors now. Especially international investors that would be looking at the CO2 as an incentive to put the money down, and allow the project to go ahead,” he said.

Ecosecurities’ head of implementation, Belinda Kinkead, confirmed Machado’s account of their dealings with the CDM project.

She pointed out that at the end of 2008, the average time to validate a project was 329 days, plus an additional average of 191 days to register it – so the window to validate new CERs before 2012 was rapidly closing.



Kinkead added that prices for validations and verifications had almost trebled in the last 12 months, meaning that it was not cost-effective to verify 10,000 CERs if the process alone was going to cost €2/tonne.

“Couple that with volatile carbon prices, high price expectations from project developers, global economic conditions and a lot of speculation about whether CDM will continue to exist in its current form post-2012, and many market players are becoming much more risk averse,” Kirkhead told Point Carbon.

Ecosecurities compared the current situation with the “wait and see” attitude that prevailed in the market prior to the coming into force of the Kyoto protocol in 2005.

“There is no doubt that this will impact development of greenhouse gas reducing projects,” said Kinkead. “The sooner there is greater clarity on what will exist post-2012 the better for investors and project developers alike.”

This article was published on the Point Carbon website.