Recession could fuel a scramble from rich nations to buy cheap emissions rights to help them meet climate targets under the Kyoto Protocol, analysts say. That would displace trade in wider emissions permits and especially a market in carbon offsets which could be worth $25-30 billion to developing countries by 2012. The climate may also suffer unless revenues from the emerging trade in sovereign emissions rights, called assigned amount units (AAUs), are spent on good environmental causes. "Now with the financial crisis ... governments could be more inclined to go for AAUs," said Kris Voorspools, head of energy market analysis at GDF-Suez. The Kyoto Protocol caps the planet-warming greenhouse gases of 37 industrialised countries by issuing them a fixed quota of emissions rights from 2008-12. These countries can meet their targets either through domestic emissions cuts, or by earning carbon offsets from clean energy investments in developing countries. They can also meet their quotas by buying permits from other industrialised countries which are under-cutting their targets. Russia, Ukraine and east Europe have enough AAUs to spare to cover the entire shortfall of all other Kyoto countries combined, because of the collapse of their polluting industries and carbon emissions during the economic transition from communism after 1989. As a result they could flood the market, dampening demand for offsets which are more directly linked to emissions cuts, and displace domestic action. Despite that credibility concern, countries are now casting a serious eye over AAU trades. Last week Poland said it had entered final negotiations to sell AAUs to Ireland and to the World Bank. The price was around 10 euros ($14.38) per tonne of avoided carbon dioxide emissions, said a source close to the deal, compared to offset prices of around 14 euros. Japan, the world's fifth-biggest polluter, will announce within weeks its first batch of AAU deals with east European nations, a Japanese official said this month. KYOTO Most industrialised countries are exceeding their Kyoto greenhouse gas limits, fuelling concern about the cost of meeting those limits during a global downturn. Canada has already said it won't be able to meet its binding goal, on the grounds of cost. But thanks to the collapse of transition economies, surplus AAUs offer a cheap way out. Some 18 out of 37 Kyoto-committed countries are meeting their targets with a total 2.5 billion tonnes AAU surplus, 2006 emissions data show. The remaining 19 countries are only 620 million tonnes short. Rich governments are now looking to strengthen the credibility of AAUs with so-called "greening" clauses that force the seller to invest the proceeds in cutting emissions. That would make them more comparable with expensive carbon offsets under Kyoto's clean development mechanism (CDM), called certified emissions reduction (CERs), which are directly linked to investments in clean energy projects. AAUs could displace CERs in carbon deals between countries. However that would still leave demand for CERs from companies struggling to meet carbon caps under the European Union's emissions trading scheme, which are not eligible to buy AAUs. "Russia and the Ukraine have said they don't want to flood the market, but even if they keep half of their AAU quota, the amount they have left to sell has the potential to depress CER prices," said Ashley Thomas, a carbon analyst at Daiwa. "If we had huge volumes being traded, then it might hurt CER prices ... but I don't see any signals to say an unreasonable volume is about to enter the system," said Miles Austin of CDM project developer EcoSecurities. (Additional reporting by Nina Chestney; Writing by Gerard Wynn; Editing by James Jukwey) Sourced from the Thomson Reuters Carbon Markets Community - a free, gated online network for carbon market and climate policy professionals.
Recession could fuel a scramble from rich nations to buy cheap emissions rights to help them meet climate targets under the Kyoto Protocol, analysts say.
That would displace trade in wider emissions permits and especially a market in carbon offsets which could be worth $25-30 billion to developing countries by 2012.
The climate may also suffer unless revenues from the emerging trade in sovereign emissions rights, called assigned amount units (AAUs), are spent on good environmental causes.
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"Now with the financial crisis ... governments could be more inclined to go for AAUs," said Kris Voorspools, head of energy market analysis at GDF-Suez.
The Kyoto Protocol caps the planet-warming greenhouse gases of 37 industrialised countries by issuing them a fixed quota of emissions rights from 2008-12.
These countries can meet their targets either through domestic emissions cuts, or by earning carbon offsets from clean energy investments in developing countries.
They can also meet their quotas by buying permits from other industrialised countries which are under-cutting their targets.
Russia, Ukraine and east Europe have enough AAUs to spare to cover the entire shortfall of all other Kyoto countries combined, because of the collapse of their polluting industries and carbon emissions during the economic transition from communism after 1989.
As a result they could flood the market, dampening demand for offsets which are more directly linked to emissions cuts, and displace domestic action. Despite that credibility concern, countries are now casting a serious eye over AAU trades.
Last week Poland said it had entered final negotiations to sell AAUs to Ireland and to the World Bank. The price was around 10 euros ($14.38) per tonne of avoided carbon dioxide emissions, said a source close to the deal, compared to offset prices of around 14 euros.
Japan, the world's fifth-biggest polluter, will announce within weeks its first batch of AAU deals with east European nations, a Japanese official said this month.
KYOTO
Most industrialised countries are exceeding their Kyoto greenhouse gas limits, fuelling concern about the cost of meeting those limits during a global downturn.
Canada has already said it won't be able to meet its binding goal, on the grounds of cost. But thanks to the collapse of transition economies, surplus AAUs offer a cheap way out.
Some 18 out of 37 Kyoto-committed countries are meeting their targets with a total 2.5 billion tonnes AAU surplus, 2006 emissions data show. The remaining 19 countries are only 620 million tonnes short.
Rich governments are now looking to strengthen the credibility of AAUs with so-called "greening" clauses that force the seller to invest the proceeds in cutting emissions.
That would make them more comparable with expensive carbon offsets under Kyoto's clean development mechanism (CDM), called certified emissions reduction (CERs), which are directly linked to investments in clean energy projects.
AAUs could displace CERs in carbon deals between countries. However that would still leave demand for CERs from companies struggling to meet carbon caps under the European Union's emissions trading scheme, which are not eligible to buy AAUs.
"Russia and the Ukraine have said they don't want to flood the market, but even if they keep half of their AAU quota, the amount they have left to sell has the potential to depress CER prices," said Ashley Thomas, a carbon analyst at Daiwa.
"If we had huge volumes being traded, then it might hurt CER prices ... but I don't see any signals to say an unreasonable volume is about to enter the system," said Miles Austin of CDM project developer EcoSecurities. (Additional reporting by Nina Chestney; Writing by Gerard Wynn; Editing by James Jukwey)
Sourced from the Thomson Reuters Carbon Markets Community - a free, gated online network for carbon market and climate policy professionals.
