Cash-strapped Adaptation Fund puts climate projects on hold

Megan Rowling in the Thomson Reuters Foundation: A major U.N. fund that helps developing countries adapt to the negative effects of climate change faces a bleak financial future because of rock-bottom prices on the carbon market, its main source of income.

Marcia Levaggi, manager of the Adaptation Fund Board secretariat, told Thomson Reuters Foundation the fund could no longer provide grants for projects managed by intergovernmental agencies, such as the U.N. Development Programme, without additional contributions. Seven projects recommended by the board in countries including Mali, Cuba, Myanmar and Uzbekistan - amounting to $48.7 million - are on hold.

The Adaptation Fund is meant to be financed mostly from a 2 percent levy on the value of certified emission reduction (CER) credits issued under the U.N. Clean Development Mechanism (CDM) each year. The credits are earned by projects in developing nations that cut greenhouse gas emissions, and can be traded and sold by industrialised countries to meet part of their emission reduction targets under the Kyoto Protocol.

But due to oversupply and uncertainty about future global caps on emissions, prices for the credits have plunged to around 60 euro cents ($0.82) per tonne of carbon dioxide, slashing the Adaptation Fund's income.

"It's not the 12 euros per tonne we used to have in 2011 - now it's really bad, and we cannot count on a recovery of the carbon markets in the near future," Levaggi said from Washington. "The CDM doesn't seem to be on a good track to continue, at least in the way it was."...