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Ukraine May Join Russia to Shun Kyoto as Credits Fall

Ukraine may join Russia in shunning the extended Kyoto Protocol after United Nations envoys approved a text the two nations didn’t agree with, according to the Centre for European Policy Studies in Brussels.

Ukraine, the eastern European nation located in the natural-gas trading corridor between the EU and Russia, is listed in a Dec. 8 text outlining the conclusions of climate talks held in Doha as agreeing to cut its emissions by 20 percent of 1990 levels by 2020. They had already fallen by 60 percent in 2010, according to data published by the UN Framework Convention on Climate Change in Bonn on Nov. 16.

Another section of the Doha text would cancel any surplus sovereign emissions permits for the eight years through 2020 above the average annual emissions of the country in the three years through 2010. That clause may in effect require Ukraine, Belarus and other nations outside the EU while joining Kyoto to take a smaller cap, according to Norton Rose LLP. Russia has said it won’t join Kyoto’s extension. Regulatory uncertainty drove UN offset prices to record lows this week.

“Ukraine and Belarus are less likely to ratify the second commitment period of the Kyoto Protocol” because they object to the text, Andrei Marcu, senior adviser to the Centre for European Policy Studies in Brussels, said yesterday in a report on the Doha talks. CEPS advises on government policy.

For Ukraine, parts of the text seem to oppose other sections, Marcu said. The clause that may require Ukraine to take a smaller cap goes against a footnote in the table referencing Ukraine’s target, which reads: “Should be full carryover and there is no acceptance of any cancellation or any limitation on use of this legitimately acquired sovereign property.”

‘Full Carryover’

Full carryover implies Ukraine wouldn’t cancel any of the surplus Assigned Amount Units it has accumulated in the first Kyoto period, which runs from 2008 through this year. AAUs are the basic accounting permits in the Kyoto system governing emissions in 37 developed nations through 2020. “The conditions for Ukraine’s commitments are directly contradicted by the approved Kyoto Protocol text,” Marcu said.

John Hay, spokesman for the UNFCCC in Bonn, declined to comment immediately when reached by phone today.

Russia has appealed against the Doha decision, saying the nation’s attempts to speak at the meeting last week were improperly suppressed.

“We are highly disappointed in both the procedural violations and the conduct of business,” Oleg Shamanov, the nation’s chief climate negotiator, said in an interview in Doha as the talks drew to a close. “There will be very serious long-term consequences for the process.”

Less Incentive

Should Ukraine and others stick with Kyoto and adopt a tighter cap, those nations would probably have less incentive to create Emission Reduction Units under the Joint Implementation program after this year, according to Bloomberg New Energy Finance. ERUs can be used for compliance in the EU carbon market, the world’s biggest by traded volume. The largest suppliers of them are Russia and Ukraine, UN data show.

“If Belarus, Kazakhstan and Ukraine create an ERU for the 2013-20 crediting period, they will potentially need to find another reduction or allowance to make up for the traded one, as Compliance Period 1 surplus AAUs will be locked up in reserve accounts,” Richard Chatterton, an analyst at the research company in London, said yesterday by phone. “This is likely to improve the environmental integrity of Compliance Period 2 ERUs and may result in a lower issuance rate.”

‘Price Crashes’

Carbon markets don’t work well at the moment because most nations including the U.S. are not participating in them, Alf Wills, South Africa’s chief negotiator, said an interview in Doha on Dec. 8. Other nations need to be drawn in over the next eight years as the world negotiates carbon budgets or a Kyoto-like replacement to begin at the end of the decade, he said.

“When you start generating supply of credits and you don’t match that with a cognizant increase in demand through a carbon-budget approach, then the price crashes, which we have witnessed,” Wills said.

Emission Reduction Units for this month rose 27 percent today to 28 euro cents a metric ton on ICE Futures Europe exchange in London at 12:47 p.m. The reached a record low 15 cents in intraday trading on Dec. 12.

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