The Carbon Ratings Agency has launched the world’s first independent carbon credit ratings service at the London Stock Exchange. The Carbon Ratings Agency is the dedicated ratings subsidiary of IDEAcarbon.
The service will provide detailed credit ratings for carbon offset assets in the CDM, JI and voluntary markets. Each asset studied will be given a 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 Carbon Ratings Agency will provide ratings to market participants both on a mandated basis (where project owners or investors commission the agency to rate their carbon assets) and through the Agency’s Market Initiated Ratings Service, which will give subscribers access to a representative range of carbon asset ratings on an ongoing basis.
Like standard credit ratings, the new service will award 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.
The Carbon Ratings Agency has already produced market-initiated ratings for a representative sample of 25 CDM projects across a range of technologies and geographies.
Projects that have already started to issue UN certified credits are delivering 96 per cent of the credits expected at project design stage. However, these figures are dominated by a small number of large projects dealing with industrial gases: to date 20 large projects together account for more than 100 million credits, 75% of all credits issued. The rest of the portfolio of projects currently issuing credits – more than 300 projects – has an average issuance success of just above 70%.
Renewable energy and energy efficiency projects have been found to be the best performers, while coal mine methane projects have the highest standard deviation in delivery performance, although performance can vary widely within and between countries.
The carbon market has faced several well documented regulatory risks such as constraints in the CDM registration process and long term uncertainty about the international policy framework after 2012. However, CDM projects are, at their core, development projects and face many of the same issues including weak counterparts, low administrative capacity, local funding shortfalls and a complex business environment. The Carbon Ratings Agency’s management team and ratings committee includes ratings experts, financial market professionals, UN climate change negotiators and former senior managers from development agencies such as the World Bank.