Rich Nations Need Carbon Cuts to Revive Market, Figueres Says

Industrialized nations hold the key to reviving the United Nations carbon market after its value fell by nearly half last year amid a lack of clarity on future emissions goals, UN Climate Chief Christiana Figueres said.

The value of new project transactions under the UN’s Clean Development Mechanism tumbled 44 percent to $1.5 billion last year from $2.7 billion in 2009 as global climate talks stalled and the European Union set restrictions for some UN emission-reduction credits, according to World Bank estimates. The program, which generates offsets for projects that cut greenhouse gases in developing nations, needs bigger demand that would come from stricter climate targets, Figueres said.

“In the absence of deeper emission cuts on the part of developed countries, you obviously have diminished demand,” she said in interview at the Carbon Expo conference in Barcelona. “The supply is there, because developing countries have a huge potential and can certainly bring forward larger projects than they have been putting forward.”

UN talks to iron out a climate-protection framework for when the Kyoto Protocol expires in 2012 have become stuck amid differences between industrialized and developing nations. Countries including Japan and Russia have said they don’t want to extend the treaty, which bound 37 industrialized nations to targets for cutting greenhouse gases that scientists blame for heat waves, floods and storms.

The carbon market, which “stems exclusively and only out of a political agreement,” reacts immediately to regulatory uncertainty, Figueres said.

‘Very Bad News’

“ That’s very understandable, and that’s very bad news for those who are in the carbon market,” she said. “I also have no doubt that there will be agreement that will inject new, invigorated growth into the CDM, and I would not exclude the possibility that governments will chose to either expand the scope of the CDM to include new activities and new modalities or to leave the CDM more or less the way it is now and complement it with another market-based mechanism.”

The CDM, which started supplying credits in 2005, has so far generated 624 million metric tons of Certified Emission Reduction credits. A United Nations Environment Program unit expects 1.08 billion tons to be issued by the end of 2012 and 5.5 billion by 2020.

CERs for delivery in December fell 1.2 percent to 12.77 euros ($18.37) today on the ICE Futures Europe Exchange in London, trimming this year’s gain to 12 percent. The offsets can be a less-expensive way to comply with emission limits in the European Union. EU permits fell 1.1 percent to 16.80 euros today on ICE, leaving them up 18 percent for the year.

Companies in the EU system used a record 137 million of tons offsets in 2010, up from around 81 million in 2009, according to EU data. UN credits are also used by national governments to meet their emission-reduction targets under the Kyoto Protocol.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE