July 22 (Bloomberg) -- United Nations talks in Bonn next month will consider extending the emission caps included in the Kyoto Protocol for two years after they expire in 2012, preventing an interruption in the supply of offset credits.
Extending the targets may help stop a “gap” in the Clean Development Mechanism, the world’s second-biggest carbon market, should nations fail to agree on a treaty to replace or permanently extend the 1997 protocol, according to a July 20 discussion paper prepared by administrators of the UN Framework Convention on Climate Change for a group negotiating targets for developed nations.
UN talks in Copenhagen last December failed as developing nations called for richer countries to adopt tighter targets on the greenhouse gases blamed for global warming. India’s Environment Minister Jairam Ramesh said last month that nations are unlikely to agree on a global climate accord at this year’s talks in Cancun, Mexico.
“Extending Kyoto for two more years seems unlikely at this stage,” said David Lunsford, emissions trading policy leader at the Geneva-based International Emissions Trading Association, a lobby group. “Nations haven’t even started to grapple with what targets might be feasible for such an uncharted period,” he said today by phone and e-mail.
The treaty’s first restrictions on greenhouse gases are for the five years starting in 2008. Under one interpretation of climate laws, a failure to extend or replace Kyoto would prevent validation and registration of CDM projects, the paper said.
“Emission reductions or removals that occurred after the first commitment period could not be verified, and corresponding Certified Emission Reductions could not be issued,” according to the paper. Developed nations can create emission offsets by investing in projects that curb greenhouse gases in poorer nations. Those credits can be used for compliance in the European Union program, the world’s biggest emissions market.
Global climate talks are seeking a second set of emission targets through 2017 or 2020, or potentially a program of coordinated national policies for climate protection.
“Support for the Kyoto structure has waned over recent years since adoption, making it unclear if an extension would receive necessary support,” Lunsford said.
UN CERs for December fell 0.8 percent to 11.78 euros ($15.11) on the European Climate Exchange in London at 10:14 a.m. local time. They’ve jumped 7.3 percent in the year to date, compared with 11.3 percent for EU permits.
The value of trading in UN offsets fell 38 percent last year to $20.6 billion as prices dropped and the number of credits being sold for time fell 48 percent, according to World Bank figures published in May.
‘Carbon in Limbo’
“For markets to play a role in pricing, supply and demand should form a key pillar of the next climate agreement,” Lunsford said. “An unresolved Kyoto gap could put global supply and demand for carbon in limbo for some time,” he said. “Intermittent international policy would create an unhealthy investment environment for global emission reductions.”
The UN is also considering “provisional” amendments to the protocol to fill the potential supply gap, as well as “opt in” procedures for nations where they wouldn’t be “bound by the amendment unless it undertakes a ratification procedure,” according to the UN discussion paper.
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