London, UK (Reuters) - The U.N.’s climate change agency on Wednesday proposed to make it more difficult for speculators to earn carbon offsets from emissions-cutting projects which were already profitable.

Under the U.N.-run Kyoto Protocol, industrialized nations can meet limits on their output of planet-warming gases such as carbon dioxide by funding emissions cuts in the developing world under the Clean Development Mechanism (CDM).

Such criticism has threatened to impact demand in the $13 billion market, for example in the European Union where policy officials have expressed concern about the quality of projects.

An earlier article documented growing concerns about management of the CDM, which was being routinely abused by chemical, wind, gas and hydro companies claiming emission reduction credits for projects that should not qualify under the program. (See The Clean Development Mechanism - Serious Questions Remain!)

A major overview of the World Carbon Market published by the World Bank earlier this year noted that the success of the CDM is threatened by a creaking infrastructure that, despite some efforts to streamline, is struggling to process the overwhelming response from project developers worldwide in a timely manner.

It noted that Procedural inefficiencies and regulatory bottlenecks have strained the capacity of the CDM infrastructure to deliver decisions on schedule, as too many projects await registration and issuance.

In future CDM projects will have to show that emissions cuts were a direct result of the U.N. scheme. For example they will have to demonstrate that banks lent money because of the prospect of offset sales, the U.N. climate panel responsible for setting rules has proposed.

"The primary focus… should be on exploring which types of project activities are potentially very profitable even without considering additional revenues from the CDM," the panel said in a call for public comments.

Any new rules would initially apply to new biomass plants using waste to generate power, but could be widened to other projects, the panel suggested in proposals which can be found here.

U.N. climate officials also agreed last week to amend the project approval process. From this week, developers will have to inform the local environment ministry and the U.N.’s climate agency within six months of starting a new emissions-cutting project, in a step which may make it more difficult to exaggerate the role of the U.N. scheme in the commercial decision to launch a project.

Details of that decision can be found here. 

The draft rule changes for the CDM (Guidance on the Demonstration and Assessment of Prior Consideration of the CDM) can be found here.

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For More Information: Reuters