by Fiona Harvey | The Guardian

The UN clean development mechanism, designed to give poor countries access to green technologies, is in dire need of rescue

The world’s only global system of carbon trading, designed to give poor countries access to new green technologies, has “essentially collapsed”, jeopardising future flows of finance to the developing world.

Billions of dollars have been raised in the past seven years through the United Nations‘ system to set up greenhouse gas-cutting projects, such as windfarms and solar panels, in poor nations. But the failure of governments to provide firm guarantees to continue with the system beyond this year has raised serious concerns over whether it can survive.

A panel convened by the UN reported on Monday at a meeting in Bangkok that the system, known as the clean development mechanism (CDM), was in dire need of rescue. The panel warned that allowing the CDM to collapse would make it harder in future to raise finance to help developing countries cut carbon.

Joan MacNaughton, a former top UK civil servant and vice chair of the high level panel, told the Guardian: “The carbon market is profoundly weak, and the CDM has essentially collapsed. It’s extremely worrying that governments are not taking this seriously.”

The panel said that governments needed to reassure investors, who have poured tens of billions into the market, by pledging a continuation of the system, and propping up the market by toughening their targets on cutting emissions, and perhaps buying carbon credits themselves.

Governments have a last chance to restore confidence in the system when they meet in Qatar this December to discuss climate change. But few participants hold out any hope that they will agree to toughen their 2020 emissions targets, which are scarcely even on the agenda. Instead, governments are focusing on drawing up a new climate change treaty by the end of 2015, which would stipulate emissions cuts for the period after 2020.

Under the CDM, developers of projects to cut carbon emissions in developing countries receive a UN-issued carbon credit for every tonne of carbon dioxide the project avoids. This applies to a wide range of activities, from building new windfarms and solar panels, and distributing more efficient cook stoves and lights, to the installation of technology on factories to prevent the release of certain industrial gases.

The system was set up under the 1997 Kyoto protocol, after years of debate, but no credits could be issued until that treaty finally came into force in 2005. Since then, just over 1bn CDM credits have been issued.

These carbon credits can in theory be bought by the governments which are obliged by the Kyoto protocol to cut their emissions, to count against their targets. In practice, however, with the US refusing to ratify Kyoto and big emerging economies such as China, India and Mexico carrying no emissions-cutting obligations under the treaty, Europe is the only market of any size. The EU has its own cap-and-trade emissions scheme, under which heavy industries are awarded a quota of carbon they can emit, which they can top up by buying the UN credits.

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