OLIVE EARTH

In January there were reports that banks and investors are pulling out of the carbon market after the failure to make progress at Copenhagen on reaching new emissions targets after 2012. Is that unfounded? How real is the threat.

Here is the Olive Earth peek-down.

During the Kyoto negotiations in 1997, the EU originally proposed a 15% cut in global greenhouse gas emissions by 2010. The United States ensured that these cuts were lowered dramatically to 5.2%, even though US failed to ratify the Protocol. Later President George W. Bush pulled out altogether. Developing countries like, China, India and etc. were not included in any emission limitations in the Kyoto Protocol given their per capita emission was too below the targets set. The Kyoto Protocol sets binding targets for 37 industrialized countries, called Annex 1 countries, for reducing greenhouse gas emissions to an average of 5% against 1990 levels between 2008-2012. 

 So what is beyond 2012 on the value of carbon offsets/credits.

It is a known fact that in a market that is not fully mature and there are no standards of verifying the various categories of carbon credits (CERs, VERs) generated through mechanisms like CDM and Voluntary reductions. There is no standards to define the value the buyer gets by buying different grades of carbon credits. While there have been efforts and CERs generated through CDM are very standardized, EU continues to feel that the quality of carbon credits generated by Developeing countries was low grade and the quality standards definitely need to improve.

EUs agenda in the Copenhagen summit was to initiate an orderly transition to the sectoral mechanisms to provide clarity to investors and ensure the continuing stability of the international carbon  market. The defined the sectoral trading mechanism as below:

• The developing country sets a sectoral emissions target below the business as usual trend.
• The target defines a cap on the number of tradable units, which are created in advance.
• If emissions are reduced below the target, the developing country has excess tradable units and can sell the excess to developed countries as offsets. These revenues finance mitigation in the developing country.
• If the sector emits more than the cap allows, the developing country must buy credits to make up the difference.

The also pushed for the fact that an indicative timeline for introducing the new mechanisms in the sectors and countries concerned should be agreed by COP-16 in November 2010. The timeline should include a date after which the chosen sectors in these countries would no longer be able to register CDM projects. A robust system of measurement,reporting and verification (MRV) of the sectoral mechanisms must be put in place to ensure only real emission reductions arerecognised. Developing countries will require additional capacity building support for their participation in the carbon market, including MRV. This is particularly the case for the participation of more advanced developing countries in the sectoral carbon market mechanisms and of LDCs in the CDM.

The stance of EU was in firm support of several LDC (Least Developed Countries) on the stance. Tuvalu and Alliance of Small Island States (AOSIS) have said here that the Copenhagen summit needs to produce a document much stronger than the Kyoto Protocol that neither puts obligations on US nor on emerging economies.  They pushed for form a contact group to consider the proposal for a new protocol that calls for vigorous action, such as binding cuts and puts less than 1.5 degree limit in warming, by developed countries and emerging economies.

Developing nations (India and China) and oil producing states including Saudi Arabia have opposed it on the ground that there should not be any detraction from Kyoto Protocol, the treaty that imposes legally binding sanctions on industrialized nations, excluding the US. India and other nations suspect that Europe's support for a new protocol is also an attempt to weaken the Kyoto Protocol.

However there is a broad agreement that there has to be stricter regime and standard MRV procedures to define the quality of Carbon Credits. The LDCs need to be more and more involved in the process and it should contribute to their economic growth. EU itself recognizes that:

• The additional cost to developing countries of mitigating and adapting to climate change under an ambitious global deal is estimated at €100 billion annually by 2020
• The EU is ready to pay its fair share of the additional €22-50 billion in international public finance that is expected to be needed each year by 2020
• Fast-start’ financing for the period 2010-2012 is essential to help developing countries build up their capacities for adaptation and mitigation as soon as possible
• Global market-based instruments to cut GHG emissions from international aviation and maritime transport could become a source of significant additional finance
• Total international public finance required by developing countries is estimated by the European Commission to be in the range of €22-50 billion per year by 2020 under a global agreement that is in line with the EU’s level of ambition.

There is strong push to make USA as a mainstream participant with ratification of such targets.

Kyoto or not, the global push towards a sustainable future is going to continue. Olivearth believes that Carbon offsets have to be a miniscule part of the overall sustainability strategy of an organization. Carbon Offsets will need to continue in a more structured and standardized format to create a strong incentivization mechanism around the globe to reduce emissions.

It will continue to grow stronger. EU predicts an annual market of Euro 38 Billion per annum for carbon credits in days to come. While the market itself may undergo several changes, the incentivization mechanism  can not be completely back-tracked, particularly when it has been reasonably successful and the threat to the climate has not subsided by any means.

May be the Mexico conference will provide the answers to the shape of the offset markets to come.

Set as favorite Bookmark Email this TrackBack Feed Hits (559)

Hide

0 Response(s)

Write comment

Title

Name

Email

Website

Subscribe via email (registered users only)

I have read and agree to the Terms of Usage.

Add

Cancel