This is timely. The Wall Street Journal ran a page 1 story on Sunday on the travails of the major developers of carbon reduction projects in the developing world, as standards for additionality and carbon accounting grow more stringent.

Such projects are certified under guidelines established by the Kyoto Protocol’s Clean Development Mechanism. As the U.N. has tightened its oversight with each succeeding version of the CDM, early entrants have found themselves squeezed, forced to write down large quantities of carbon credits:

In mid-2006, there was an early hint that regulators were toughening their stance. The issue: manure.

Decomposing manure at farms emits methane, a greenhouse gas. The projects involve placing a tarp over the manure to capture and dispose of the rising gas … But in 2006 the U.N. tightened its rules, requiring animal farms to measure the amount of methane they were capturing rather than simply estimating the number based on a formula — and use the lower number. That move slashed by more than one-third the number of credits a typical animal-waste project would produce for sale.

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We’re very familiar with dairy farm methane digesters at TerraPass. In the past, emissions reductions from these projects were basically tallied by counting cows. Given the size of the dairy, project developers estimated the annual volume of manure produced, the corresponding amount of methane, and the probable reductions. The estimates from this method were decent but necessarily imprecise, all the more so because digesters can be balky pieces of equipment. It often takes a year or more to get them running smoothly at capacity.

These days, emissions reductions on dairy farms are measured exactly by metering the digesters. The CDM requires it, as do all of the new carbon standards coming on line (recent standards tend to use CDM as a baseline). RGGI in the Northeast, WCI in the West, and VCS for the voluntary market all use far more stringent protocols than those in place in the early days of Kyoto.

The tightening of standards can be tough news for individual developers, and shifting guidelines inject uncertainty into the market. Nevertheless, the trend is a good one for the market as a whole. Offset providers are well-advised these days to try to stay ahead of the quality curve. Playing catch-up is an expensive proposition.

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