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China, EU Impasse Over UN Carbon Credits Threatens Climate Talks

China, EU Impasse Over UN Carbon Credits Threatens Climate
A coking factory discharges a plume of exhaust in Linfen, Shanxi province, China. The EU is seeking to broaden the accord to include commitments from developing nations such as China, India and Brazil. Photographer: Qilai Shen/Bloomberg

China and the European Union are at odds over the future of the United Nations carbon market and the Kyoto Protocol, a rift that threatens agreement at next month’s ministerial climate-change conference in South Africa.

The EU has “moved the goal posts” in negotiations to extend Kyoto, an emissions-control agreement that lapses at the end of 2012, Su Wei, the lead Chinese negotiator said yesterday in an interview at UN-sponsored talks in Panama City. The EU is seeking to broaden the accord to include commitments from developing nations such as China, India and Brazil.

A failure to agree on new Kyoto limits would dry up the future of the UN’s eight-year-old carbon market, worth $7.8 billion at current prices, Su said, publicly linking the fate of an agreement and trading for the first time. The breach threatens progress on a fund to help developing nations adapt to the impacts of climate change and efforts sought by the U.S. and richer nations to bolster the system to monitor country emissions pledges.

“The impasse on Kyoto will be the determining factor whether we can get agreement,” Jake Schmidt, international climate policy director for the New York-based Natural Resources Defense Council, said in an interview. “If we can’t find a resolution on Kyoto, the developing countries have basically said no progress on the other issues.”

Fallen Value

Carbon-dioxide emissions credits generated through the UN’s Clean Development Mechanism are directly tied to the fate of the Kyoto Protocol, Su said. The value of offsets under the program has fallen 41 percent in the past year as Europe’s economic slump left factories idle and reduced demand for the certificates that let industry pollute.

“If you’re talking about the legally binding treaty, the Kyoto Protocol, you certainly need to have targets to have the CDM projects,” Su said.

“If there are no targets, how can that be implemented?” Su said.

India, Brazil and Venezuela are backing China’s position, Schmidt said, though delegates from those nations haven’t commented about the matter to reporters in Panama this week.

Delegates from more than 190 nations are working to replace or extend the 1997 Kyoto accord, which set limits on emissions of gases blamed for changing the Earth’s climate. Su said the talks this week have bogged down over “new conditions” imposed by the European Union.

Carbon Reductions

“The European Union has made clear that as a precondition for taking on binding commitments under the Kyoto Protocol after 2012, negotiations must start on a more comprehensive regime” that includes enforceable carbon-reduction agreements from “major developing countries such as China, India, and Brazil,” Alden Meyer, an observer attending the UN talks for the Cambridge, Massachusetts-based Union of Concerned Scientists, said in an interview.

Artur Runge-Metzger, the European Commission’s climate envoy, rejected the idea that the clean-development market can’t move forward without a extension of the Kyoto accord.

“The CDM institutions are self-funding,” Runge-Metzger said in an interview. “There’s no kind of clause that says it comes to the end at the end of 2012.”

China and other developing countries may be using the market issue for leverage in talks with richer nations, according to Schmidt.

Misreading the Impact

“They have misread the impact of that because the Europeans will reconstitute a carbon market system within Europe,” Schmidt said in an interview.

The European Union and New Zealand have adopted carbon-market rules. “Are they going to stop those because they don’t have the Kyoto Protocol continuation? Not likely,” Schmidt said.

Industrial nations favor the clean-development market because it gives them a cheap way of cutting emissions. China’s comments suggest Su will use the program to push for deeper pollution cuts from those nations. Japan, Canada and Russia already have signaled they wouldn’t sign up for an extension of Kyoto’s restrictions. The U.S. never ratified the pact.

UN offset credits can be bought by companies such as utilities seeking to comply with limits on greenhouse-gas emissions under cap-and-trade systems. China is the world’s biggest emitter of carbon dioxide and has generated 57 percent of the CDM credits since the program started in 2003. India is No. 2 with 15.8 percent.

About 13 billion euros ($17.5 billion) of emissions-reductions certificates were issued last year, accounting for 14 percent of the 93 billion-euro carbon market, according to Bloomberg New Energy Finance estimates on Jan. 6.

This round of talks wraps up today and is the last formal session before the event in Durban, South Africa.

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