Clean energy project risk rating service launched

LONDON (Reuters) - Clean energy projects in developing countries are being assigned bond-like risk ratings under a new service aimed at bringing transparency to the opaque carbon offset market, carbon market analysts IDEAcarbon said on Wednesday.

In the carbon offset market under the Kyoto Protocol, worth $13.4 billion last year according to the World Bank, companies and governments from rich nations invest in clean energy projects in developing countries and in return receive offset credits.

These offsets, each equivalent to one tonne of atmosphere-warming carbon dioxide (CO2), can then be sold for profit or used to meet greenhouse gas emissions targets under Kyoto.

The Carbon Ratings Agency, a subsidiary of IDEAcarbon, will evaluate the various risks associated with an individual offset project and measure the likelihood that it will deliver the emissions reductions expected.

Like other credit rating organizations, the agency will then award a rating ranging from AAA for projects with the lowest risk of non-delivery, through to C and D for projects expected to severely underdeliver.

"Our analysis shows that the concern of many investors is justified -- carbon projects are risky and until recently these risks have been underestimated," said Ian Johnson, chairman of IDEAcarbon and former vice president for sustainable development at the World Bank.

The offset project market has been plagued by a wide range of risks including long delays in registration and offset issuance, high administration costs, and political variables.

As a result, the UN issued a downward revision in May of the estimated offset supply up to 2012, the final year of Kyoto's first commitment period.

The Carbon Ratings Agency said that because the market faces such a complicated array of uncertainties, very few projects would been seen as being near risk-free, generating all expected offsets.