The first independent carbon credit ratings services launches today at the London Stock Exchange.
The service, offered by the Carbon Ratings Agency–a subsidiary of IDEAcarbon–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.
As trading deepens and the carbon market grows, a growing number of companies will enter the project-based market. They will look for quality projects, which do not expose them to undue performance risk. Like financial investors in other markets, they will expect a clear, transparent and unbiased declaration of those risks.
The Carbon Ratings Agency aims to provide this service. It has already produced market-initiated ratings for a representative sample of 25 CDM projects across a range of technologies and geographies.
Summaries of this initial set of ratings have been compiled in a report that will be made available at the launch. The report reveals that the carbon markets face a complicated set of risks, with very few of the projects achieving AA ratings and a significant proportion liable to under-perform compared to volumes projected at the project design stage. Each rating provides a detailed analysis of a wide range of risks to project performance.
Projects that have already started to issue UN certified credits are delivering 96% 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.
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