UN Carbon Offset Role to Give Way to New Markets, IETA Head Says

National carbon cap-and-trade measures will play a bigger role in climate-change efforts as the importance of offset mechanisms started by the United Nations wanes, the head of an emissions trading lobby said.

The shift from a UN-led global carbon market toward national systems will encourage countries to link markets and trade pollution permits with each other, as Europe and Australia are doing, Dirk Forrister, chief executive officer of the International Emissions Trading Association, said yesterday.

“The two emissions-trading systems may not be exactly the same, but policy makers still think it’s a good idea to link them,” Forrister said at a conference in Amsterdam. “The lesson to take is that maybe the value of the UN system is to give emissions-trading systems a common pedigree.”

Carbon offsets allow emitters to pay for greenhouse-gas reductions in developing countries, which can be used to meet emissions caps elsewhere. Existing offset standards under the UN’s Clean Development Mechanism and Joint Implementation programs have been a common link used by markets in the European Union, Australia and New Zealand. These nations and Japan can use offsets to meet emissions limits under the Kyoto Protocol.

Governments ensure their pollution-cutting markets match UN standards and limits by linking their permits to Assigned Amount Units, which represent their Kyoto targets, and by allowing UN- sanctioned offsets to be used for compliance. Most developed countries agreed in December to extend Kyoto limits through 2020.

Domestic Targets

“Even though they have acted as the ‘glue’ in international emissions trading so far, the importance of the Clean Development Mechanism and Joint Implementation are declining, and the wave of the future is links between emissions-trading systems,” Forrister said.

Negotiations started two years ago on a so-called New Market Mechanisms structure, which may allow nations to set their own domestic targets and link those markets to others with similar goals. The EU and Australia this week began a public consultation over how to link their two markets by 2015.

“The new framework will be open to non-Kyoto countries, so it could encompass national programs in countries such as the U.S., Canada and Japan,” Forrister said. “The aim of the framework is to co-ordinate various approaches, and it may allow smaller countries to use the CDM, since it’s more appropriate to their size.”

Architecture Failing

The New Market Mechanisms structure will also create space for countries to “go it alone,” to join or create trading blocs, or include sub-national trading systems such as the Californian market or the Regional Greenhouse Gas Initiative in the northeast U.S., he said.

“The top-down market architecture is failing,” Forrister said. “Linked emissions-trading systems are the future.”

Reform of the UN’s Clean Development Mechanism is still valid, because it may be used by smaller nations in the future, he said.

“A UN ‘toolkit’ could be used to enable mid-sized countries to build a system that gains the confidence of the business community,” he said. “Standardized baselines for approving emissions-cutting projects, registration and offset issuance and a common registry could all assist emerging markets in second-tier countries.”

Such changes would produce a UN-sanctioned unit available for trade in any system, he said.

“Our job is to work on the hallmark” of such a system, he said.

To contact the reporter on this story: Alessandro Vitelli in London at avitelli1@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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