IDEAcarbon Rates Joint Implementation Projects

The Carbon Rating Agency, a dedicated ratings subsidiary of IDEAcarbon, has released the first set of ratings for Joint Implementation (JI) projects under JI guidelines. The Ratings include the first ever projects to reach final determination status as well as projects without final determination.

Ian Johnson, Chairman of the Carbon Rating Agency, said: "Project based mechanisms remain one of the key tools for combating climate change. As 2012 is approaching, there is more uncertainty over long- term prices for carbon and this is increasingly affecting project developers and financiers.

Our service provides an independent, objective analysis on the quality of ERUs generated by the JI projects. These ratings will provide a significant contribution in assisting markets to mature along with the host countries and to standardise carbon as a commodity and create a new asset class."

JI is one of the flexible mechanisms created under the Kyoto Protocol which allows industrialised nations to offset carbon emissions at home by funding "clean" projects elsewhere through the transfer of equivalent "emission reduction units" (ERUs). JI is very similar to the Clean Development Mechanism (CDM) except that JI is designed to assist Annex 1 (industrialised countries or economies in transition) in meeting their targets through investment in projects in other Annex 1 countries.

Countries eligible to issue ERUs are divided into Track 1 and Track 2 based on certain criteria laid down by the JI Supervisory Committee, a UNFCCC regulatory body. Countries using Track 1 ERUs use their own internal procedures when awarding credits, while Track 2 ERUs require an external regulatory and compliance regime closer to the CDM.

The majority of JI projects involve capture of fugitive gases, nitrogen oxides and coal mine methane projects, whereas the majority of CDM projects are renewable energy. Russia (65% of projects) and Ukraine (20% of projects) dominate the JI pipeline and are responsible for the majority of growth in 2007.

Amul Gogna, Managing Director of the Carbon Rating Agency, said: "The JI process is still at an early stage with the first project reaching final determination in March 2007. Hence, compared to the CDM, the market is less transparent and the perceived regulatory risk is considerately higher.ERUs generally receive lower prices in comparison to CERs, another reflection of the higher risks perceived by buyers."

Each JI project has been given an independent rating based on a detailed analysis of the underlying project, leading to an assessment of the likelihood of it delivering its stated emissions reductions in the stated time period. The Carbon Ratings Agency also considers the economic and social development benefits that the project does, or does not bring.

The Ratings have been awarded on scores ranging from AAA for the highest quality, lowest risk offset assets, through to C and D for the highest risk assets which are least likely to meet their stated goals. Each rated JI project will be able to provide financial investors a clear, transparent and unbiased declaration of these risks.

Summaries of the initial set of six ratings have been compiled in the table below.

Table 1: Initial set of rated JI projects