UN Rules Out Extending Kyoto CO2 Limits This Year, Hurting Carbon Market

The United Nations envoy leading climate talks ruled out extending greenhouse gas limits in the Kyoto Protocol this year, leaving in place doubts about the future of a $2.7 billion a year part of the carbon market.

Christiana Figueres, secretary general of the UN Framework Convention on Climate Change, said a meeting in Cancun, Mexico, wouldn’t be able to agree how to limit emissions after the current obligations under the pact expire in 2012.

“It is very clear that given the diversity of positions on the Kyoto Protocol it is not going to be possible for Cancun to take a radical decision one way or the other on the Kyoto Protocol,” Figueres said at a press conference today.

Failing to extend the 1997 accord negotiated in Japan may put the world’s second-biggest market for emissions credits at risk of collapse. The organization’s Clean Development Mechanism, worth $2.7 billion last year, is defined in the Kyoto Protocol, and the credits are generated to help polluters worldwide meet emissions targets laid down in the 1997 treaty.

Last night, Japan said it won’t help extend the Kyoto limits. The treaty is “outdated” because it only regulates 27 percent of global emissions, Kuni Shimada, special adviser to Japanese Environment Minister Ryu Matsumoto, said in an interview.

‘Cast a Shadow’

“This is the firmest Japan has been,” Jake Schmidt, international climate policy director in Washington at the Natural Resources Defense Council, said in an interview in Cancun. “The fate of the Kyoto Protocol is going to cast a shadow over what we’re trying to do here on all the other building blocks of a climate agreement.”

Figueres said that while Japan’s position is not new, it illustrates the complexity of the Kyoto negotiations. Countries must “compromise” and find common ground in order to make progress while in Cancun, she said.

The agreement negotiated in 1997 in Kyoto, Japan, binds 37 developed nations and the European community to cut emissions from 1990 levels by a collective 5.2 percent in the five years through 2012. The U.S. never ratified the treaty, and developing countries such as China don’t have targets. To avoid a gap in compliance periods, new targets need to be agreed before 2012 so nations have time to pass the necessary domestic laws.

“There doesn’t seem to be any flexibility when you say never,” Bernarditas Muller, a delegate from the Philippines who’s negotiated at UN climate meetings since 1995, said today in an interview in Cancun.

Japanese officials plan their first press briefing in Cancun this evening.

Credits Sold

Traders this year have sold UN credits on concern Kyoto may not be extended. Even so, with limits still in place in Europe, companies needing to meet their EU targets on emissions reductions may still buy UN credits after 2012.

Credits for 2012 that were created under the UN Clean Development Mechanism, set up after the Kyoto accord, traded at 4.25 euros ($5.58) less than those in the European Union’s cap- and-trade program as of Nov. 30. That compares with a 2.39 euro discount at the start of the year.

Offsets for 2010 gained 0.3 percent today to 11.8 euros a metric ton, paring their decline to 12.5 percent in the past three months. EU permits rose 0.1 percent to 14.78 euros.

The value of credits sold by investors in CDM emissions- reduction projects contracted 59 percent last year to $2.7 billion, according to a World Bank report.

Talks Stall

Talks to extend Kyoto’s emission targets to the U.S. and China, the world’s biggest emitters, failed at the 2008 UN climate talks in Poznan, Poland.

In Copenhagen last year, negotiators were hoping to write a global treaty replacing Kyoto. That discussion collapsed over divisions between developed and developing nations and differences between the U.S. and China over the scale and monitoring of emissions cuts.

“China and India want to make sure the Kyoto Protocol is not dead, and you’ve got Japan and Russia and Canada saying no chance unless the U.S. and China are onboard,” Schmidt said. “It’s a Gordian knot.”

The U.S. isn’t likely to be able to agree to binding targets until at least 2013 because it needs to have domestic legislation in place first, Shimada said.

“Without the active participation of the two biggest emitters, namely China and the United States, it’s not a global effort,” said Shimada, who was formerly Japan’s lead negotiator at the talks. “Whatever happens, under any kind of conditions we do not accept a second commitment period.”

Divisions on Climate

The comments indicate the depths of divisions that have prevented a new treaty on climate change. UN officials leading the current round of talks are aiming for more incremental progress on protecting forests, channeling funds to poor nations and on verifying reductions in emissions blamed for damaging the Earth’s atmosphere.

Agreeing to an extension for the Kyoto Protocol is a key demand by the G77 group of developing countries, China and the 43-nation Alliance of Small Island States.

“This is against the stated position of the G77,” said Muller of the Philippines, who speaks on behalf of the bloc. “We don’t want to kill the Kyoto Protocol, so we’re not very happy about it.”

The 27-nation European Union has said it’s open to a second commitment period, though it also wants action by the U.S. and China.

U.S. Position

Jonathan Pershing, chief of the U.S. delegation, said earlier this week that the Obama administration stands by its commitment to reduce emissions of heat-trapping gases by 17 percent for the 15 years through 2020. He said President Barack Obama still thinks legislation is the right approach even after Congress this year failed to pass a climate change law and Democrats lost control of the House of Representatives.

“We think it may not necessarily only be comprehensive legislation, but perhaps elements in energy or elements in other environmental activities that could also move us in that direction,” Pershing said.

Environmental and non-profit groups slammed Japan’s refusal to accept a second commitment period.

“It’s shocking that at a time when the whole world is seeking to strengthen the climate regime, Japan wants to kill the treaty that bears its name,” Mohamed Adow, senior climate change adviser at Christian Aid, said in an e-mailed statement.

The collapse of the UN-backed CDM carbon offset market would impact the source of funding for renewable energy projects in developing countries in Asia, Haruhiko Kuroda, president of the Asian Development Bank, said at a briefing today in Tokyo.

“The truth is that the carbon trading market has already been impacted,” Kuroda said. If the CDM collapses, “a very important pillar of the financing mechanism for climate change mitigation efforts in developing countries is going to be disappearing.”

To contact the reporters on this story: Kim Chipman in Washington at kchipman@bloomberg.net; Stuart Biggs in Tokyo at Sbiggs3@bloombereg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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