UN Climate Deal Should Boost Confidence in CO2 Cuts, IETA Says

The climate package approved by more than 190 countries last week should boost investor confidence in the governments’ determination to cut greenhouse gases, the International Emissions Trading Association said.

Negotiators at the United Nations climate summit in Durban, South Africa, agreed on Dec. 11 that nations will adopt by 2015 a pollution-curbing deal with a legal force to be enacted by 2020. The new framework will include both industrialized and poor countries, ending the current legal construction that imposed mandatory goals on rich nations and allowed voluntary targets for developing ones.

The deal “keeps the door open to new medium-term initiatives in which the private sector must have a role to play, and should to some degree increase confidence about the determination of governments across the world to limit carbon, and thus increase the value of low-carbon actions and investments,” IETA said on its website.

The prices of European Union carbon allowances and UN offsets are “unlikely to be strongly affected” as the package adopted in Durban may not be enough for the EU to tighten its 2020 emission-reduction target and stimulate demand for emission credits, according to the lobby group.

The 27-nation bloc is on track to meet its internal goal of lowering greenhouse gases by 20 percent below 1990 levels by 2020 and has said it may move to 30 percent if other countries follow suit. The EU vowed after the conclusion of the UN climate summit to extend its international commitments under the Kyoto Protocol after the current ones expire next year. The deadline for submitting new Kyoto goals is May 1, 2012.

Clean Development Question

Investors will “eagerly await clarification” from the EU if the Durban package affects the eligibility of credits generated under the UN Clean Development Mechanism for use in the European emissions trading system, IETA said.

The European cap-and-trade program allows emitters to use UN Certified Emission Reduction credits generated in return for investment in greenhouse-gas cutting projects in developing nations as a cheaper way of compliance with their EU pollution limits. According to its emissions law, 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.

“At first sight it might appear, with larger developing countries in effect signing up to an international agreement, that their post-2013 CERs might again be eligible in the EU ETS,” IETA said. “But the formidably complex provisions in the EU ETS Revised Directive do appear to rule that out.”

Pending further information from the European Commission, the EU regulatory arm in Brussels, “it would seem unwise for developers to assume the EU is back in the demand game, outside the Least Developed Countries,” according to IETA.

Market Mechanisms

The lobby group also said that the UN decision to develop a new market-based mechanism to assist developed countries in meeting part of their emission-reduction targets or commitments was “a major step forward,” noting that all the modalities and procedures are yet to be defined.

“One ominous sign is wording that appears to limit the use of markets to circumstances where the mechanism achieves a net decrease or avoidance of emissions, suggesting trouble if the principle of offsetting -- the only route to private sector economic value from carbon so far invented -- is intended to be excluded,” IETA said.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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