Carbon-market supporters from China to California will push for emissions trading even as they prepare for the end of the United Nations Kyoto Protocol in seven years, Europe’s top climate negotiator said.
Nations including China and New Zealand and some U.S. states have formed an informal group, “kind of the champions of the carbon market,” Artur Runge-Metzger said in a May 2 interview in Bonn, Germany. “It’s that club that’s going to set international standards” rather than UN talks, he said.
Countries are increasing links between markets outside of the climate-protection targets set by the UN, which has led global efforts to reduce emissions since 1992. California last month approved rules that allow companies in the world’s ninth largest economy to trade pollution rights in Quebec, while Australia in 2012 agreed to use European permits to cut costs.
The 1997 Kyoto Protocol sets market-based emission-reduction targets for the EU and 37 countries. The U.S. and China, the biggest polluters, never signed, making the agreement “something that ended up in a kind of cul-de-sac,” Runge-Metzger said during the climate talks last week.
Under the EU’s cap-and-trade system, designed to meet the bloc’s Kyoto targets, tradable permits are allocated to polluters that must surrender enough of them to cover their emissions or pay a fine. The euro area’s second recession since 2008 cut demand for allowances and UN credits, sending prices to record lows last month and reducing incentives to invest in low-carbon technologies.
Future agreements under the UN’s 1992 Framework Convention on Climate Change may never be implemented in “the real world,” U.S. climate negotiators led by Todd Stern, said in a March 11 submission ahead of the Bonn talks.
China has joined the World Bank’s Partnership for Market Readiness, a program which seeks to cut emissions at a faster pace than set out by existing national targets. The biggest energy user is preparing seven domestic carbon markets, covering 28 percent of its economy.
China is unlikely to link its existing and proposed carbon markets to those with emissions targets set by the UN, including the EU market, Su Wei, the nation’s lead climate negotiator, said May 2 in Bonn.
“It’s too early to talk of a linkage with the EU market because that is a failed market,” Wei said in an interview. “If there are no ambitious targets there will be no demand. The carbon markets aren’t running very well.”
The UN has effectively “stepped back” from managing emissions programs partly because of resistance from countries against market-based climate strategies such as Bolivia, Venezuela and Cuba, Runge-Metzger said.
Both international and national efforts to combat climate change are “absolutely critical” because efforts by countries and industries don’t match what’s required to stop temperatures from rising 2 degrees Celsius (3.6 Fahrenheit), Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change, told reporters in Bonn.
Governments are seeking to keep any increase in global average temperatures below that level.
Climate envoys are debating whether allowances and credits used to comply with the Kyoto treaty can be used under a new market system beyond 2020 that may include more nations. Russia has the biggest stockpile of Kyoto units, according to UN data on Bloomberg.
The debate over the use of the credits is “going to be quite political,” Runge-Metzger said. “The majority of countries don’t have them.”
EU carbon for December plunged to a record 2.46 euros ($3.22) on April 17 on the ICE Futures Europe exchange in London after the European Parliament rejected a proposal to enable the reduction of the surplus of allowances. They slid 44 percent in the past year and closed at 3.79 euros today.
The EU’s change in emphasis toward nation-led markets is a “sensible shift in policy,” Daniel Rossetto, the London-based managing director of emissions markets adviser Climate Mundial Ltd., said in a May 7 interview. The UN approach “is probably destined to fail, while bilateral negotiations between like-minded countries is more likely to proceed,” he said.