On the face of it, Latin America is the Clean Development Mechanism’s land of opportunity.

Home to the first-ever project developed under the Kyoto Protocol scheme for offsetting greenhouse gas emissions, the continent currently has 649 new projects in the pipeline. Per capita, it boasts more Carbon Emission Reduction credits (CERs) – the currency of the CDM scheme – than any other region in the world.

The big numbers only tell half the story. Despite Latin America’s potential as a carbon credit producer, progress on emission-reduction schemes remains patchy. “Basically there are only a few countries that have taken advantage of the carbon market,” says Alberto Carrillo, a research and business development specialist with carbon project developer EcoSecurities.

Leading the pack are Brazil and Mexico, with 255 and 182 projects currently in the pipeline, respectively. The remainder of the CDM map is sketchy at best. Some sporadic activity is evident in Argentina, Chile, Honduras, Ecuador, Peru and Guatemala. Venezuela, Belize and many of the Caribbean Islands are yet to even feature.

Opportunities

Lack of political will is partly the problem. With three decades’ experience in ethanol production, Brazil’s authorities were well set to adapt to the CDM. The remainder have had to start from scratch.

A limited number of local project developers compounds the problem. Those that do exist often lack access to the necessary carbon financing to make their ideas work.

International project developers and operators, however, remain upbeat about Latin America’s ability to maximise its potential.

Most importantly, previous technical barriers are now being gradually overcome. In CDM sectors where Latin America has tended to invest, such as landfill methane and agricultural biogas, the level of expertise is now high. But as many of the larger scale projects in the region such as landfill gas are beginning to dry up, so project developers are starting to diversify.

Agricultural-based methane is one such area attracting market interest. With methane having a global warming factor 21 times higher than carbon dioxide, methane sequestration is a rich source of CERs.

Another sector attracting interest is renewables, notably small hydropower and wind power projects. Through the Proinfa programme in Brazil, the government offers project developers a fixed tariff for such technologies. The scheme also includes a long-term power-purchase agreement with the state-owned utility, Eletrobrás.

“These types of projects are attractive because they generate revenue through the sale of electricity,” says Francesca Cerchia, Latin American managing director of carbon markets for Econergy International.

A UK company, listed on the Aim market for small and developing enterprises, Econergy has a major wind project coming on stream in the state of Ceará, in north-eastern Brazil, during the second quarter of 2008. The 26MW wind farm is one of four renewable energy projects it has under construction in Latin America.

Energy efficiency, gas recovery and fuel switch projects are on analysts’ lists of the “next big things” in Latin America.

Should a methodology for avoided deforestation and reforestation be fully approved in the future, Brazil and other rainforest countries in Latin America will also be well positioned to take advantage.