Carbon offset bottleneck is temporary -UN official

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LONDON, Nov 13 (Reuters) Tighter United Nations scrutiny of projects to cut greenhouse gas emissions will slow the supply of carbon offsets only until project quality improves, the UN official who heads carbon trading said on Tuesday.

The Kyoto Protocol on global warming puts limits on emissions of planet-warming gases by industrialised countries, but allows them to buy carbon offsets from developing nations.

That carbon trade, worth billion last year, has attracted speculators who invest in projects to curb greenhouse gas emissions and sell the resulting offsets.

But there has been public criticism of some projects in the Kyoto trading scheme, including accusations of fraud in India.

Increased UN staffing has now allowed more review of the schemes, slowing the rate of approvals.

''I see it as a transitory situation... improved quality of projects will make it possible to register more,'' said Halldor Thorgeirsson, director of sustainable development mechanisms.

Newly observed problems included missing information and lack of clarity.

''I would expect this to have stabilised by the middle of 2008. There will always be reviews but much lower fraction than we are seeing now.'' A lack of capacity among private sector auditors -- supposed to screen project applications -- was also a concern, he said.

The United Nations climate change body would issue early next year new guidance for these project ''validators''.

Thorgeirsson said that the media criticism of the scheme had not been led to any change in fundamental policy.

''There's no change in policy. We want to maintain rigour...

it has no relationship with the media.'' The slowdown has hurt sentiment in the carbon market and the share price of some project developers.

EcoSecurities shares are down a quarter over the past seven days, following a profit warning last week when the company blamed U.N. process delays, while those of rival project developer Camco are down a fifth.

Buyers of carbon offsets, called certified emissions reductions (CERs), include countries exceeding their Kyoto emissions caps and European companies straying over their European Union emissions limits.

A carbon trader at one EU corporate buyer said the slowdown would require companies to slash expected CER delivery rates, and force them to buy more emissions permits.

But financial traders were less concerned about delays and supported efforts to raise integrity.

The bottleneck reflected a shift where projects with easy to prove emissions cuts -- so-called additionality -- had been snapped up.

''Now the lower quality projects, where additionality is more difficult to prove, are experiencing delays. There hasn't been too much market reaction,'' said Evolution Markets broker Gilles Corre.

Benchmark EU allowances (EUAs) were trading at around 22.5 euros today, while CERs closed at 17.5 euros yesterday.

REUTERS SBC VC2200

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