Investors wary of Kyoto carbon market controls

NAIROBI, Nov 9 (Reuters) Investors in an emerging global carbon market are put off by a lack of expertise in UN-backed controls on trade between rich and poor countries, experts said yesterday.

''When you're working in this arena and you've got money on the line, it feels like a pretty rinky dink operation,'' said Dirk Forrister, managing director at Natsource, which has some 800 million dollar funds under management in the carbon market.

The Kyoto Protocol allows rich countries facing binding greenhouse gas emissions targets to pay developing nations to cut emissions on their behalf.

Big money investors have poured in to hoover up the emissions cuts, called carbon credits, for sale later to countries when the 2008-12 Kyoto targets deadline nears.

''It's only recently that the private sector has become involved in the Kyoto process,'' said Jed Jones, an official at the British Department of Trade and Industry at a side event at a climate change conference in Nairobi.

''It takes time to evolve,'' he added, referring to the relationship between investors and UN regulators. In Nairobi, some 189 countries are meeting to discuss a united approach to tackle global warming.

Carbon projects have to clear several qualification hoops, including a UN panel, and delays have created what investors call a bottleneck: of a 1,200 project pipeline so far some 400 have U.N.

registration.

At a similar climate change conference last year countries pledged more resources to such carbon trading under Kyoto, called the Clean Development Mechanism (CDM).

But the UN climate change body still needs more resources, it says.

''They are working their guts out,'' said a spokesman for the United Nations Framework Convention on Climate Change (UNFCCC), referring to the CDM project judging panel.

''The word 'bureaucrat' is an insult to people who dedicate so much time to making CDM work.'' Margins can be very handsome for investors who in the past have bought carbon credits for as little as 5 euros and sold them for more than 20.

Last month, the US investment bank Morgan Stanley said it planned to invest some 3 billion dollars over the next five years in carbon markets, including CDM.

In September the World Bank closed a 800 million euros CDM deal in China and UK-based specialist bank Climate Change Capital announced it had raised 830 million dollars for carbon investments.

But given project risks, delays and uncertainties some investors are still wary.

''I gave (some potential carbon investors) the lay of the land and they invested in telecoms in the end,'' said Andrei Marcu, president of the carbon market lobby group, the International Emissions Trading Association.

REUTERS AKJ BD0942