Ratings bring efficiency and transparency to the rapidly growing carbon market, say developers
The London Stock Exchange has launched the world's first independent carbon credit ratings service.
The Carbon Ratings Agency (CRA), a subsidiary of IDEAcarbon, will provide credit ratings for carbon offset assets.
Welcoming the launch of the service, Lord Stern, author of the influentital Stern Report on the effects of climate change and vice chairman of IDEAglobal Group, said: "The carbon markets are showing their potential to reduce global emissions and should form a key plank for any future global climate agreement.’
Each asset studied is given a rating based on analysis of the likelihood of the project delivering stated emissions reductions. The Agency will also consider the economic and social benefits that the project brings.
Like the other credit ratings, the new service will award scores ranging from AAA for the lowest risk assets through to C and D for those least likely to meet their stated goals.
IDEAcarbon said: ‘Improved transparency and better risk management - including ratings - are an integral part of the process that will turn carbon into a new asset class. Carbon ratings will help to standardise carbon as a commodity and create a new asset class. Rated assets will no longer be unique but comparable to other offset assets with the same rating.’
Lord Stern commented: ‘If we are to attract the levels of finance necessary to make this a mainstream market and have a strong impact on emissions reduction, risks must be clearly understood, articulated and managed. A detailed ratings system is a vital tool to bring greater clarity, transparency and certainty to the market.’
Investors and the market can commission the rating.
The CRA has already produced market-initiated ratings for a sample of 25 projects.
Summaries of this initial set of ratings reveal that a significant proportion of the projects are liable to under-perform.
Renewable energy and energy efficiency projects have been found to be the best performers.