Solar power in Mongolia
Shutterstock
The Clean Development Mechanism helps solarize poor, rural communities.

Failure thus far to agree on a successor to the Kyoto Protocol means the world’s largest carbon-offset program is poised to shrink.

Since it began operating in 2004, the Clean Development Mechanism (CDM) has supported 7,432 projects to rein in greenhouse gas emissions in poor and developing countries. Those projects have included wind, solar, and bioenergy installations, forest plantations, and energy-efficiency efforts. (Controversially, they have also included coal- and other fossil fuel-based projects considered cleaner than alternatives.) The $315 billion in funds for those projects came from wealthy countries looking to invest in opportunities abroad to help meet their domestic Kyoto Protocol commitments.

But that cash pipeline is starting to dry up as demand for such greenhouse gas-reducing projects shrivels.

The U.N. board that oversees the CDM voted Friday to cut its administrative budget by 14 percent for the coming year. “[R]equests for registration have declined significantly, and are now at levels not seen since 2005,” the board noted. “They may be expected to remain low for 2014 and 2015, and potentially beyond.” That’s because of uncertainty over the fate of an agreement now being negotiated to replace the Kyoto Protocol — an agreement that would not take effect before 2020.

As Reuters explains, “the failure of nations to craft a new climate change deal to force emission cuts on the biggest emitting countries has left the market for carbon offsets oversupplied, sending prices crashing and nearly bankrupting many of the companies that invested in CDM projects.”

But there’s another, more heartening reason for the funding slowdown: The need for carbon credits is falling as more countries find ways to reduce their own emissions at home. The rise of carbon taxing and trading schemes around the world is reducing demand for CDM-issued credits. And companies operating in the developed world are reducing their own carbon footprints.

Even if nations succeed in crafting a new climate pact in Warsaw this month, it might not help the CDM. Again, from Reuters: “The final deal will likely include new market-based mechanisms designed to allow the private sector to fund emissions cuts at the cheapest cost, but the CDM’s role alongside any new mechanism is unclear.”