VER market in Asia needs more local demand

Singapore, 8 November: The market for voluntary emission reductions (VERs) has the potential for explosive growth in Asia, but this will only be achieved if there is a sharp increase in local demand, experts say.

Anne-Marie Warris, global product manager for environmental management systems with Lloyds Register Quality Assurance, told the Carbon Forum Asia conference on 7 November that Asia currently supplies around 20% of all VER credits. This makes it the second biggest source of such credits after the US, noted Gilles Corre, London-based director of carbon markets with broker Evolution Markets.

But a key lesson from the rapid growth of voluntary emission reduction efforts in the US is that buyers of VERs prefer local credits, said Martin Berg, an emissions trader with Merrill Lynch. At present, Asian buyers represent only about 1% of total VER demand, said Sascha Lafeld, managing director of 3C Group, a carbon asset manager based in Germany.

Globally, however, demand for VERs has soared as more and more companies and institutions – particularly in North America and Europe – attempt to offset their emissions of greenhouse gases either to enhance their reputation as a socially responsible business or in response to investor or customer pressure.

Evolution’s Corre noted that the VER market in 2006 had been estimated at around 13.4 million tonnes of carbon dioxide but, in the first 10 months of this year, his company alone had brokered more than that amount.

Unlike certified emission reductions (CERs) awarded to projects that qualify under the Clean Development Mechanism of the Kyoto Protocol, VERs cannot be used for compliance with mandatory emission reduction targets.

The market has come in for adverse publicity in recent months, because of the wide variety of projects that have claimed VERs, but standards are now being developed for the voluntary market that will be closely aligned with the criteria imposed on CDM projects. Indeed, several speakers at the Singapore conference noted that many VERs are simply credits generated by CDM projects before the projects are officially registered to be issued with CERs.

Among the many drivers boosting the supply of VERs, Lafeld of 3C noted that:

• the transaction costs are generally lower than for CERs;
• there is no need for the host country to give formal approval to the project;
• countries that have not ratified the Kyoto Protocol can issue VERs;
• some developers of CDM projects find the process too complicated and time consuming and prefer to sell their emission reductions as VERs. 

An additional driver on the demand side, he noted, is that in some countries where mandatory emission reduction programmes are likely to be introduced in future – such as Australia – VER purchases may qualify as ‘early action’. This means they could be taken into account when setting baselines for companies affected by the mandatory regime.