UN carbon market will survive should Kyoto goals end, EU says

The United Nation’s carbon market will survive if the Kyoto Protocol greenhouse gas-reduction goals for developed nations expire in 2012 without being immediately renewed, the European Union climate chief said.

The EU, which gives companies in its emissions trading system the right to import credits from the UN’s Clean Development Mechanism, will probably remain that market’s driving force in coming years, said the bloc’s Climate Commissioner Connie Hedegaard. The European cap-and-trade system, the world’s largest, was valued at $119.8 billion last year, according to World Bank estimates.

“The CDM will continue more or less as it is now,” Hedegaard said in an interview during a visit to New York. “We should still try to avoid the gap, but as Europe is the main player in the game, as we have legislation, targets, rules on offsetting, I cannot see why we wouldn’t continue to work with CDM projects.”

The 27-nation EU has a target for a 20 percent reduction in greenhouse-gas discharges by 2020 compared with 1990 levels, and it wants to limit them by as much as 95 percent by 2050. The bloc’s emissions trading program, known as ETS, is a cornerstone of its climate initiative, putting limits on more than 11,000 utilities and manufacturing companies and leading to a cap in 2020 that would be 21 percent below 2005 discharges.

Cheaper compliance

The European program allows emitters to use credits generated under the CDM for investment in greenhouse-gas reduction projects in developing nations as a cheaper way of compliance with their EU pollution limits. Last year companies in the ETS used a record 137 million offset credits, up from about 81 million in 2009, according to EU data.

EU carbon allowances for December traded at 11.40 euros a metric ton on London’s ICE Futures Europe exchange today. UN Certified Emission Reductions closed at 8.04 euros yesterday.

As of the beginning of 2013 the EU will allow the use of new offsets only from projects in least developed and most vulnerable countries. It will also strive to ensure environmental integrity of CDM projects, Hedegaard said. The bloc earlier this year banned the import of certain industrial gas offsets including those from projects to cut hydrofluorocarbon-23 as of May 2013, arguing the credits offer “exorbitant” return rates and can create a “perverse incentive” for investors.

Environmental integrity

“It’s extremely important for us that CDM projects have environmental integrity,” Hedegaard said. “We banned HFC-23 and that will probably not be the last ban, but it’s also not so that every second month we feel tempted to make new bans. There has to be predictability in the system.”

As global talks on an emissions-reduction framework after 2012 have stalled amid differences between developing and industrialized countries, the next UN climate summit that starts in November in Durban, South Africa, “looks challenging,” Hedegaard said.

At the previous meeting of more than 190 nations in Cancun, Mexico, in December, China, India,Brazil and South Africa pressed developed nations to make pledges of bigger cuts, while Japan,Russia and Canada said they don’t want to extend the Kyoto treaty unless the two biggest emitters, China and the U.S., accept the agreement.

“It’s very important to bear in mind that the issue is as urgent as ever despite the fact that lots of governments have so much energy tied to the handling of the economic crisis,” Hedegaard said.

Single binding agreement

EU environment ministers will meet on Oct. 10 in Luxembourg to discuss the bloc’s negotiating mandate for Durban. While member states’ preference remains a single internationally binding agreement to protect the climate after 2012, governments are divided over the conditions under which the bloc could agree to extend its Kyoto emission-reduction commitments, officials close to the EU presidency said earlier this month.

It’d be “absurd” for the EU to sign up to the so-called second Kyoto commitment period without any conditions for other major polluters, Hedegaard said.

“I think nobody would in sincerity say that Europe is killing Kyoto,” Hedegaard said. “The problem is those who don’t want to commit reductions in a binding form under Kyoto and who so far haven’t said what they would do instead,” she said.

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