Both governments announced several carbon offsetting deals at Cop28 in Dubai under the umbrella of the Paris Agreement’s bilateral carbon trading principles.

But the rules for how to implement them have yet to be agreed, as negotiations at Cop28 collapsed over discussions on how to ensure the integrity of carbon credits. Still, that hasn’t stopped deals such as Paraguay’s moving forward without clear guidelines.

Climate experts and organisations fear the lax rules approved by the Paraguayan government – as well as its proximity to industry players – risk the new UN mechanism repeating problems that have beset the voluntary carbon market, where companies have frequently ended up buying junk offsets.

Fossil fuel firms seek UN carbon market cash for old gas plants

Despite such concerns, Paraguay has made carbon markets a top priority, even rushing to pass a new law in less than one month – between September and October 2023. The law created a national registry and a set of rules for every carbon project in the country.

It “will contribute enormously to the growth and development of the country”, said Minister of Environment Rolando de Barros Barreto, in an official statement the day the law was signed by President Peña.

De Barros Barreto was heavily involved in lobbying for the legislation to pass through Congress without modifications. “We are one of the few countries that have a tool like this,” he added in the statement.

A man fishes near chimneys giving off emissions in an industrial area of Singapore, January 5, 2016. (Photo/Reuters/Tim Wimborne

Carbon shopping

Pressed by a hike in Singapore’s domestic carbon tax – which will rise from about $3 per tonne to $18 in 2024 – its government went shopping for carbon offsets at Cop28 to offer big emitters back home. It held talks with Bhutan, Papua New Guinea and Paraguay as potential suppliers.

Paraguay – which, according to industry minister Javier Giménez García de Zúñiga, was seeking to position itself as the “lung market” of the world – landed an ideal customer.

Both countries agreed to create a bilateral commission to pick carbon-cutting projects in Paraguay. Companies based in Singapore could purchase credits from these projects in exchange for a discount on the new carbon tax rates. No official document on the deal has yet been disclosed.

“What was agreed is to create a road connecting the two countries to manage the transfer of carbon credits,” Giménez García de Zúñiga said in a statement published jointly by the two countries to mark the deal.

On the same day, President Peña also signed a memorandum of understanding with Cop28 host United Arab Emirates, which had embarked on its own controversial spending spree for carbon offsets, mainly in the form of agreements with African countries.

At COP28 in Dubai, Paraguay’s Minister Rolando de Barros Barreto and the UAE’s Mariam Almheiri sign a Memorandum of Understanding on carbon credits. (Photo: Paraguayan Presidency)

Rushed rules

In order to arrive at Cop28 as a reliable supplier of carbon offsets, the Paraguayan government rushed its law regulating carbon markets through both chambers of Congress in less than a month.

The initiative was marketed abroad by President Peña as “one of the most advanced laws in the world” and as a way to attract foreign investment. But it also has been heavily criticised by opposition lawmakers, academics, Indigenous peoples and environmental groups.

The new law passed without including safeguards to guarantee environmental and human rights based on an international standard that seeks “to mitigate the negative impacts of projects and, above all, to defend the rights of the people”, explained Mirta Pereira, a Paraguayan lawyer and advisor for the Federation for the Self-determination of Indigenous Peoples (FAPI).

Alberto Núñez, an activist from the Youth Network for Climate Action Paraguay, said in a public hearing prior to the bill’s approval that “without explicit human rights safeguards, this (law) will have a climate-friendly name but will be destructive”.

Opposition senators said it had been influenced by peddling to favour law firms that advise on carbon projects.

A proposal to create mechanisms for handling complaints, information requests and potential land conflicts was also rejected by Peña’s ruling bloc of lawmakers.

Protected forests

Another issue is that the new law allows for carbon projects to be set up within national parks and forest reserves, in an effort to finance the country’s protected areas, experts said.

But the forests in the concession areas would have already been protected without funding from the offsetting projects, which means their credits lack “additionality” in terms of emissions reductions, according to the standards recommended by the Integrity Council for the Voluntary Carbon Market (ICVCM), an independent body that seeks to raise the quality of carbon credits for trading.

Junk offset sellers push to enter new UN carbon market

Inigo Wyburd, a researcher at non-profit organisation Carbon Market Watch, said “additionality is necessary” for Paraguay’s market to be credible. “It is important that it is reflected in the text of the law. Areas that are not at risk of being deforested should not be eligible to receive carbon credits,” he added.

Without such safeguards, carbon schemes – including the country’s bilateral offsetting deals – risk repeating the errors of the voluntary market, according to Carbon Market Watch policy analyst Jonathan Crook.

Forest projects whose offsets are traded in the voluntary market have been widely criticised for over-crediting emissions reductions, as well as struggling to monitor forest loss. In some cases, projects have also led to human rights violations, especially against Indigenous peoples.

Industry brokers in the room

In September, a few months before Singapore and Paraguay announced their deal, the two governments held a meeting in New York, attended by big carbon brokers likely to benefit from the agreement.

They included Singaporean commodities giant Trafigura Group, which is one of the world’s largest carbon traders and Paraguay’s biggest fossil fuel supplier.

Peña also met in New York with Per Olofsson, CEO of Paracel, a forestry company seeking to sell carbon credits from eucalyptus tree plantations in Paraguay, where Olofsson had joined meetings lobbying in favour of the new carbon markets bill.

Photograph of Paraguayan President Santiago Peña at a meeting in New York on September 20, 2023. The photograph shows Per Oloffson, CEO of Paracel, and Benjamin Chia, Singapore’s main carbon markets negotiator (second and second to last on the right, respectively). Chia’s attendance was not announced. (Photo: Paraguay Presidency)

Both Paracel and Trafigura have faced questions over the integrity of their carbon credits and had projects suspended by carbon credit verification agency Verra.

Trafigura faced problems in June 2023, when Verra launched an investigation into its Southern Cardamom project in Cambodia, after human rights groups raised concerns about land conflicts with Indigenous people.

Trafigura, which had already committed the credits to corporate buyers, had to suspend them. The results of the investigation have not yet been revealed.

Meanwhile, Paracel was also questioned last year by Verra, which suspended one of its projects aiming to generate carbon credits from a wood-pulp mill and eucalyptus plantations in Paraguay.

The project took a $200-million loan from the Inter-American Development Bank, which according to Verra, shows that the project had no additionality, since it would have accessed finance anyway and continued without selling carbon credits.

Excerpt from Verra’s letter denying registration of Paracel’s project

According to Verra, Paracel had until December 19, 2023, to present improvements and thus avoid a final rejection of the project. But as of March 1 this year, neither the company nor Verra had published updates regarding its status.

Paracel is also facing a dispute with a local community called Sargento José Félix López, in Paraguay’s northwest, which denounced the siting of some eucalyptus plantations on public land.

Asked about Verra’s concerns, a Paracel spokeperson said the company was gathering documentation to submit to Verra, noting that additionality was fundamental for its biggest international buyers.

Paraguay’s new carbon market law is a positive step towards regulating the local market, the spokesperson added.

Asked if that same law would be useful for international agreements, Rodrigo Maluff, vice minister of investment, said the door is still open to modify the legislation and adapt it to the standards demanded by Singapore.

The legal director of the Ministry of Environment, Víctor González, said much of the work could be done through the regulatory process under the law that will begin this year.

Transparency concerns

Experts told Climate Home that agreements like the Singapore-Paraguay deal could be negatively affected by the failure of governments at Cop28 to reach a consensus on rules for the new bilateral carbon markets being discussed under the Paris Agreement’s Article 6.2.

One key element of discord at Cop28 was how robust the process to verify the quality of the credits should be.

Carbon credits talks collapse at Cop28 over integrity concerns

“More and more countries [like Paraguay] and companies are negotiating bilateral agreements, in the absence of comprehensive regulation,” said Crook from Carbon Market Watch.

“This risks undermining transparency and may make negotiations [at Cop29] even more difficult, given the absence of clear direction,” he added.

A longer version of this story was first published in Spanish by El Surtidor as part of the Opaque Carbon project led by the Latin American Centre for Investigative Journalism (CLIP) and bringing together 14 media outlets from Latin America.

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In the launch video, a calm female voice makes a plea over jangly guitar. “Join us to accelerate net zero with more transparency, liquidity and efficiency,” she says, as a headless businessman fondles a hologram of a globe.

Two months on, this call has been largely ignored. Climate Home’s analysis of trading data suggests most days see no trading at all. 

Carbon credit traders and experts blamed a lack of incentives to buy, administrative mistakes and muddled government priorities. 

A divisive solution

A carbon exchange allows the trade of carbon credits. One company takes carbon dioxide out of the atmosphere and another pays to take credit for it.

Carbon credit supporters argue they are a way of financing climate action which wouldn’t otherwise take place while critics say their real-world benefits are overstated and they offer polluters an excuse to keep emitting.

The European Union and China’s exchanges are among the biggest in the world. President Widodo predicted in September that Indonesia’s could soon rival them.

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But the exchange has got off to a very slow start. Of the 19 trading days that Climate Home was able to obtain data for, there was no trading on 17 days.

This data was gleaned from IDX statements and from some of its daily reports, which regularly vanish from its website. IDX did not respond to repeated requests for the full data.

The price of carbon has remained the same since the launch, suggesting it is an inactive market.

Low demand

Demand for the credits is low. This is reflected by the price of carbon – just RP 69,600 ($4.50) per tonne of carbon dioxide.

Demand could be boosted if Indonesia implements a scheme to cap company's emissions and tax them on any excess.

The idea is to allow them to avoid tax by buying another company's unused emissions allowance or by buying carbon credits.

The government initially suggested a tax would be set up in 2022 but now says it will be set up next year or the year after, saying carbon markets must be set up first.

France, Kenya set to launch Cop28 coalition for global taxes to fund climate action

The voluntary market has been launched and the compliance market will begin next year, when the cap and tax is piloted on coal-fired power plants.

The government has given out mixed messages on the extent to which companies will be able to buy voluntary credits to cover their cap and tax obligations. The energy ministry wants a limited role, while the environment ministry wants a more expansive one.

Suppliers kept out

All that has dampened domestic demand and the regulations to allow foreign companies to buy credits have yet to be put in place.

Dessi Yuliana is the director of CarbonX, a company which buys and sells credits. She told Climate Home that this is because of pending international trading regulations and divided priorities in the government.

While some groups in government are keen to attract foreign investment the main administration priority is ensuring that carbon credits issued are counted towards national carbon reduction commitments, Yuliana said.

So far, the exchange lacks sellers as well as buyers. The government has authorised just three companies to sell credits.

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Fifiek Mulyana from PWC Legal Indonesia said this was because, with more regulations on carbon trading to be issued soon, many companies are still in a “wait and see situation”.

One Indonesian carbon credit seller, who did not want to be named, complained that regulations are often vague and inflexibly enforced.

A lack of expertise and experience needed to swiftly assess projects credibility is a particular problem, they added, with only four verification and validation bodies signed up.

With carbon credit projects plagued by accusations of overcounting and human rights abuses, the role of verifiers will be crucial.

“A lot of investors basically use carbon credits as a form of green virtue signaling," says Bill Sullivan, a mining and energy lawyer with Christian Teo & Associates.

“Accordingly,” he added, “any scandals in this sector could undermine the whole point of carbon credits as far as they are concerned and, so, make buying carbon credits must less attractive for them."

The post Slow start for Indonesia’s much-hyped carbon market appeared first on Climate Home News.

Following several instances of cryptocurrency enthusiasts buying carbon credits which don’t do much good for the climate, this project’s backers want to keep those buyers but steer them onto carbon credits which have been verified by organisations like Verra and Gold Standard.

Steve Glickman, an Obama-era White House official whose company Aspiration is part-funding the project, told Climate Home that “we haven’t seen nearly as much capital and nearly as many institutional investors… that we need to see to have the kind of impact on nature-based carbon removal and reduction strategies that are required for us to hit net zero”.

“Our analysis of why that’s slow,” he said, “is that there’s real questions in the marketplace around how you would do this type of carbon credits, investing in a highly credible, responsible way and so we want to build the mechanisms of methodology for doing that… and that’s where the blockchain comes in.”

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The blockchain is a computer-based system that use digital keys to prove and display who owns what. A blockchain combined with a central registry of carbon credits helps ensure that those who are carrying out green projects aren’t selling the credit for one tonne of emissions reductions to more than one buyer.

Gilles Dufrasne is the policy officer for a watchdog NGO called Carbon Market Watch. He said this kind of transparency was “useful”.

Rachel Kyte is a former CEO of Sustainable Energy for All and leads an initiative to promote integrity in carbon credits. She told Climate Home: “Blockchain offers opportunities to build high integrity voluntary carbon markets and it is good to see IFC looking for ways to bring high integrity to many developing countries who could benefit.”

But Dufrasne warned that the information provided must be understandable to be truly transparent. He said financial technology (fintech) companies often claim their projects are transparent because all the information is public. “It may be transparent, but it’s not accessible because nobody understands how it works apart from the fintech people,” he said.

China responds coolly to US climate bill, rejecting a call to resume cooperation

Blockchains can use lots of energy. But this project uses a blockchain run by a company called Chia which relies on a system called “proof of space and time” which uses far less energy than the “proof of work” system used to produce Bitcoin.

Catherine Flick, a computing academic at De Montfort University, told Climate Home this method “is less problematic but relies on the miners proving they have the space to store the data (so memory and hard drives) for a period of time. So instead of energy use there is demand for storage which is problematic in terms of electronic waste and demand for rare earth metals and chips required for the storage”.

Companies buy carbon credits and retire them to offset their emissions but investors also buy them and don’t retire them, in the hope that the price of carbon credits will rise and they can sell them for a profit. Or companies can snap up cheap carbon credits and retire them when the price is high, polluting for cheaper than they would otherwise have done.

Glickman said: “From our standpoint, it doesn’t really matter why you’re coming into this to invest, that capital is going to support the climate finance necessary to support those projects and we think it’s a good thing that there are more ways that these carbon credits can be liquid beyond just being retired against a carbon footprint.”

Why the US climate bill might struggle to deliver on carbon capture

Turning credits into “tokens” is an attempt to attract investors who have become caught up in the “non-fungible token” (NFT) craze where people have paid up to $69m to be recognised as the “owner” of digital art.

Dufrasne said that buying a carbon credit, whether it’s an NFT or not, doesn’t help the climate unless it is retired rather than being sold on. He said: “I’m not under the impression that so many actors in the in the cryptocurrency space are there to just buy these tokens and then make them disappear because then they don’t have anything else to sell.”

While blockchain can help avoid double-counting, it doesn’t help solve other problems with carbon credits like whether the emissions reductions claimed for wouldn’t have happened anyway and whether the emission-cutting projects will survive for as long as the credit sellers claim.

The post World Bank backs carbon credit blockchain registry to attract crypto investors appeared first on Climate Home News.

Carbon markets allow countries and companies to buy credits to meet their climate goals by investing in carbon-cutting projects elsewhere.

But in recent years, countries have been unable to agree the rules for new international carbon trading system under the Paris Agreement. The postponement of the next UN climate summit, Cop26, to November 2021 because of coronavirus is dragging out the uncertainty for investors and project managers about the future of carbon credits.

“It’s a burning issue for us,” said Sandeep Roy Choudhury, the co-founder and director of VNV Advisory, an Indian social enterprise which develops climate-related projects in South and South-East Asian communities, supporting the work of more than 50 NGOs in the region.

Choudhury has been using carbon markets to raise private finance and support projects such as restoring forests and mangroves, establishing sustainable agricultural practices, developing rural energy access and rolling out clean cooking facilities.

But the lack of clarity on the new rules has made investors increasingly reluctant to back projects, which often have a lifespan of five to 10 years, he told Climate Home News. As a result, his company has put developing new projects on hold for the time being.

While VNV Advisory has so far been able to support its established projects, “smaller project developers don’t stand a chance,” Choudhury said.

What is Article 6? The issue climate negotiators cannot agree

If applied with robust rules, advocates say carbon markets are a cost-effective way to achieve emissions reductions and could help countries meet their climate goals under the Paris deal.

Critics warn that carbon offsetting takes the pressure off big polluters to tackle their own emissions, while channeling money into projects of questionable value.

The issue has become one of the most contentious in the climate talks. Negotiators failed to reach a consensus on the new market rules both at climate talks in Katowice, Poland, in 2018 and again in Madrid, Spain, last December. The earliest it could now be agreed is November 2021, at Cop26 in Glasgow, UK.

Souparna Lahiri, an Indian climate campaigner and advisor to the Global Forest Coalition, argued most offset programmes established through voluntary carbon markets were “flawed”.

The Clean Development Mechanism (CDM), a carbon market established in 1997 under the Kyoto Protocol, has been mired in allegations of human rights abuses and corruption, with a majority of projects found unlikely to drive emissions cuts.

“At present, and in this post-2020 era of climate action, you cannot operate with all these flaws when there is an increasing sense of monitoring, reporting and transparency,” Lahiri said.

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The postponement of Cop26 bears some legal implications for the CDM. The mandate for developed countries to use CDM credits to achieve their climate goals runs out at the end of 2020.  Extending the CDM’s mandate would need to be agreed by parties to the Kyoto Protocol.

The CDM could also be given a new mandate under the Paris Agreement. Countries like Brazil and India want to continue trading their surplus credits from the previous regime. That faces opposition from Europe and climate-vulnerable countries, on the basis it risks flooding the market with low-value credits and undermining the Paris goals.

Under the San Jose principles, an alliance of progressive countries said pre-2020 credits had no place in Paris-era carbon accounting.

Countries don’t have to wait for the deadlock to be resolved to start using carbon trading, said Alex Hanafi, lead counsel at  the Environmental Defense Fund’s Global Climate Programme.

Under Article 6.2 of the Paris Agreement, countries are allowed to strike bilateral and voluntary agreements to trade carbon units.

Even without an agreement on rules to operate a centralised carbon market, “countries can move forward and set the bar for what implementation looks like by applying a robust set of rules,” Hanafi told CHN.

Switzerland, for example, has already indicated plans to use bilateral trading to achieve their emissions reductions.

“This is all about ambition,” Hanafi said. “If we keep waiting for something to happen [in the negotiations] we are losing precious time”. Voluntary cooperation between countries could boost confidence among investors, he added.

Airlines could get free pass on climate for five years under industry proposal

However, this may not be an option for many poor countries, which don’t have the capacity to negotiate multiple markets and are relying on a centralised system.

The absence of internationally agreed rules creates “a potential wild west of carbon markets”, warned Erika Lennon, a senior attorney at the Centre for International Environmental Law (CIEL).

Negotiators should use the additional time “to get the rules right,” Lennon said. That meant safeguarding human rights and the rights of indigenous peoples and closing loopholes that would allow for more, not less, CO2 to be emitted.

Voluntary carbon markets such as Corsia, which airlines are expected to start using to offset their emissions from 2021, lack clear guidance to avoid double counting emissions reductions, said Gilles Dufrasne, policy officer at Carbon Market Watch.

“There is a risk emissions reductions claimed today by a company will also be claimed by a country in a few years when that country reports on its climate plan,” he told CHN.

Japan to launch ‘green recovery’ platform and ministerial meeting

Some observers doubt an agreement will ever be reached.

“There is a bit of resignation setting in,” said Derik Broekhoff, senior scientist at the Stockholm Environment Institute, who described the situation as “clear as mud”. “Will we ever get an agreement an carbon markets?”

Broekhoff said the one-year delay for agreeing the rules would have limited practical impacts, with many countries still assessing how to use carbon markets to achieve their climate plans. But it extends uncertainty at a time the response to coronavirus is reshaping the economic landscape.

For Broekhoff, the post-pandemic recovery could open space for an agreement to be reached in Glasgow in November 2021. Dufrasne, of Carbon Market Watch, worries the issue will be given less attention as governments focus on rebooting their economies.

Either way, the thorny negotiations will become “much harder” as governments embark on different recovery pathways, said Marcelo Rocha, a Brazil-based consultant with expertise on carbon markets who advises governments in Latin America.

This technical issue of agreeing rules for carbon markets will now have to considered in tandem with countries’ climate plans and recovery packages, he said.

“My hope is that we use this opportunity to use carbon markets as an instrument to make a sustainable recovery happen in a more cost-effective manner.”

The post Delay to climate talks deepens uncertainty over future of carbon markets appeared first on Climate Home News.

Heavy pollution shrouds sunset in Beijing. China has said it will set up a national carbon market in 2017 (Pic: Theis Kofoed Hjorth/Flickr)

By Alex Pashley

Putting a price on pollution has moved from theory to reality, with China the latest to back carbon markets.

Now other rapid-growing economies, led by the G20, should get on board within five years, a heavyweight panel of experts said on Wednesday.

“The time is right to introduce carbon prices around the world, as well as to pursue complementary measures like reform for fossil fuel subsidies, which act like negative prices,” said Lord Stern, co-chair of the Global Commission on the Economy and Climate.

Carbon pricing cuts greenhouse gas emissions, spurs economic growth, raises tax revenue and reduces air pollution, the report said.

By 2030 all developed countries should shoot for a price of $75 a tonne of CO2, and $35 a tonne in the developing world.

That could cut annual emissions by up to 5.6 gigatons of CO2 – more than what the EU’s 28 members pumped into the atmosphere in 2011.

Around 40 governments and 20 cities, states and regions have now adopted carbon prices, covering 12% of global emissions. Still, 85% are less than $10 a tonne, with few plans to increase them.

South Africa and Chile have said they will implement a carbon tax, while South Korea has its emissions trading scheme up and running.

International institutions such as the World Bank, IMF and OECD are leading the charge to roll them out globally.

World Bank climate envoy: Sense of ‘inevitability’ over carbon pricing

The report, timed to provoke delegates at the World Bank/IMF meeting in Peru this week and G20 summit in November, tackles one of the Commissions’ ten recommendations to tackle climate change.

Ex-Mexican president Felipe Calderon, prominent British economist Nicholas Stern, and Unilever CEO Paul Polman, rank among its members.

The benefits of carbon pricing are not new but they are catching on fast, adviser to New Climate Economy, Michael Jacobs, told Climate Home.

“What we now have is much more experience, which is normalising the idea of carbon pricing as a form of fiscal policy… We are reaching a tipping point,” he said.

The report cites Canadian province British Columbia as using carbon tax revenues of $1 billion, at 3% of its budget, to lower income and business taxes.

For other countries with sophisticated tax systems, there was no excuse to shun carbon pricing. The same went for subsidies for oil, gas and coal, valued at $548 billion in emerging and developing economies in 2013.

The G20 should take advantage of low oil prices to make good its 2009 commitment to phase out subsidies, the report added.

“Many have terrible budgetary problems arising from these subsidies,” Jacobs added. “This is a very good moment to do it.”

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The CDM was set up to channel finance to developing countries for cutting emissions
(Pic: Flickr/warrenski)

By Megan Darby in Lima

Carbon markets are a cost-effective way to tackle climate change, say proponents, and should be supported by a deal next year in Paris.

It is a hot topic in Lima, where negotiations are under way to produce a draft agreement.

But the UN’s flagship carbon market project, the Clean Development Mechanism, has crashed due to lack of demand.

“We are in crisis,” Hugh Sealy, chair of the CDM board, tells journalists bluntly – and he blames technocrats in Brussels.

He is speaking in a personal capacity, in a desperate bid to salvage a future for the CDM.

Carbon offsetting

In the era of the Kyoto Protocol, things were simple: only rich countries had to cut their greenhouse gas emissions.

The CDM was set up to allow them to offset some of their targets by funding projects in poorer countries.

Some 7,800 projects in developing countries are registered to issue offsets under the CDM. They invest in solar panels or energy efficiency and guarantee the buyer a certain volume of emissions cuts compared to business as usual.

This has allowed rich countries to save an estimated US$3.6 billion in compliance costs, while supporting sustainable development.

But the price for saving or avoiding a tonne of carbon dioxide emissions has collapsed from a healthy peak of €10-12 to just €0.30.

When he first joined the CDM in 2008, Sealy says, the challenge was to scale up. “We were being told we were not generating projects fast enough.”

Activity peaked in 2012, when they registered 3,000 projects – as many as the previous five years put together.

Now, the problem is the reverse: not enough demand to sustain the projects already registered. “We are haemorrhaging capacity.”

The CDM is losing staff, too, with budget cuts of 14-15% in each of the past two years. Sealy hopes it has slimmed down enough to limp on to 2020.

Brussels bureaucrats

He blames the European Commission. The European Union had come to be the only buyer in the market, with other developed countries uninterested or doing their own thing.

In 2009, the Commission tightened the regulations on the use of offsets, prioritising projects in the 48 least developed countries (LDCs). That left emerging economies like Brazil and China with nowhere to go.

“Somebody in Brussels made a dumb decision,” says Sealy.

The CDM was set up to be “market-blind” – it cannot restrict supply to push the price up.

Its answer is “voluntary cancellation”: anyone will be able to buy credits and cancel them, reducing the surplus in the market.

This approach was used to offset emissions from the 2014 World Cup, but Sealy admits he has no idea whether there will be wider demand.

ANALYSIS: Brazil’s World Cup offset scheme missed its mark

If the parties can agree in Lima to beef up ambition pre-2020, that could also stimulate demand.

In the longer term, there is talk of building a new market architecture under the Paris deal, but this is controversial.

Certain countries, mainly in Latin America, are fiercely opposed to any mention of markets. They want governments to take responsibility for action within national borders.

That attitude was expressed by Bolivian activist Lui Zapana in an emotional intervention at an otherwise technocratic side event on Tuesday.

With tears in her eyes and speaking through a volunteer interpreter from the audience, she said it would be “a crime” to include carbon markets in a Paris deal.

“For a company, it is good business. But for vulnerable people and communities, that sell their lands for food and money, it is not a good business…

“You cannot own nature, so it does not make sense to put a price on nature.”

REPORT: Call for UN climate deal to support carbon market links

The panel members looked on solemnly. They had been discussing how, not whether, to include markets in a global deal.

“They achieve climate action at scale, without wasting public money,” said Jeff Swartz, of the International Emissions Trading Association (IETA).

Hanna-Mari Ahonen, a member of the Swedish delegation speaking in a personal capacity, agreed.

Markets mobilise the private sector to identify opportunities to cut emissions that have not been covered by public policy, she said.

Even if countries can agree to include markets in a Paris deal, their exact role is up for grabs.

The dynamics of climate talks have shifted, with all countries – not just the rich – expected to contribute.

The UN is backing a new route to channel finance from rich to poor countries: the Green Climate Fund. In this context, the CDM has lost its niche.

IETA says a Paris deal should enable the linking up of various regional and national carbon markets.

The CDM secretariat, with its expertise in results-based finance, could be a part of that, Sealy suggests.

“It is the only legitimate global carbon currency. When we say you have reduced one tonne of carbon, you have a UN certificate saying you have reduced one tonne of carbon.”

If all this fails, he says, “the CDM will be consigned to a boutique mechanism for LDCs.”

The fate of the CDM will affect the credibility of any new market, says Sealy. “Even if we started a new market mechanism, would I want to invest if by a stroke of a pen, I would kill that market?”

The post UN carbon market fights for its future at Lima talks appeared first on Climate Home News.

Source: Flickr/FMJ Shooter

By Megan Darby

Coal’s comeback in Europe could become permanent unless policymakers rethink their approach, campaigners have warned.

Carbon emissions from coal power across the EU have risen 6% since 2010, despite falling electricity demand and increased renewable generation.

That is a result of cheap coal displacing expensive, but less polluting, gas in the energy mix.

Sandbag, a London-based NGO and think-tank, called for urgent action to curb coal emissions, in a report published on Thursday.

Dave Jones, policy analyst at Sandbag, said: “Even as countries like Germany massively increase renewables, the carbon intensity of their power sector is rising as they increase their coal burn.

“The good news is this means if we act quickly there is huge potential to reduce emissions quickly by switching back to gas, but to do this this the EU needs a functioning carbon market.”

The European Commission is considering reforms to its emissions trading system (ETS) to make it more effective.

The ETS was introduced to put a price on greenhouse gas emissions and drive a shift away from the most polluting energy sources, including coal.

However, by 2013 there was a surplus of some 2 billion allowances, partly as a result of the financial crisis hitting demand. The carbon price has fallen to around €5 a tonne, which is too low to have much impact.

The Commission’s answer to this problem is a “market stability reserve”, to rebalance supply and demand. It proposes to bring this in at the start of the next trading period, in 2021.

Report: Europe proposes 30% energy savings target for 2030

Germany is calling for the market stability reserve to be brought in sooner, starting in 2017, while the UK wants surplus allowances to be cancelled altogether.

Sandbag supports both ideas for more radical reform and recommends “aggressive increases” to the rate at which the total volume of allowances falls each year.

The think-tank also suggested changes to Europe’s proposed 2030 climate framework, which currently includes a 27% renewable energy target that is not binding on member states.

Jones said: “Rather than its weak plan for non-binding renewables targets, each member state should have a binding target to lower the carbon intensity of its power sector, guaranteeing unabated coal can’t continue at high levels and supporting renewables at the same time.”

Meanwhile, analysts at Bloomberg New Energy Finance (BNEF) said a UK government scheme to prevent power blackouts will prolong the lives of aging coal plants.

After Poland and Germany, the UK is third most reliant on coal in Europe, getting 43% of its electricity from coal in 2013.

The UK’s “capacity market”, which got state aid approval from Brussels on Wednesday, was to spur investment in gas-fired power stations that could run flexibly to back up intermittent wind power.

However, a BNEF report found it was more likely to give coal generators an incentive to stay open.

Seb Henbest, head of Europe, Middle East and Africa at BNEF, said: “This message from our analysis will disappoint those who have been hoping that the capacity market would immediately pave the way for new gas-fired capacity in the UK, and also those who have been calling for the rapid retirement of coal-fired power plants.”

The post Call for carbon market reform to reverse EU coal comeback appeared first on Climate Home News.

(Pic: Flickr/Gustavo Madico)

By Gerard Wynn

China expects to launch a national carbon market in 2018, based on regional schemes it is presently piloting, a senior official at the country’s planning ministry told a World Bank conference.

The National Development and Reform Commission (NDRC) has previously said that its pilot schemes could provide useful experience for a national carbon market.

The World Bank is trying to drive wider, global adoption of emissions trading schemes (ETS), under its “Partnership for Market Readiness” programme, which hosted a conference in Mexico in March.

“Based on the outcomes and experiences of the seven pilot regions, we will establish directly the national ETS to implement cap-and-trade scheme at a national scale,” said NDRC official Wang Shu, in a presentation at the conference.

“National ETS from 2018, expected, (will) provide cost-effective way” to cut carbon emissions, his presentation said.

The present pilot schemes are due to end in 2016, coinciding with the start of the country’s thirteenth five year plan from 2016 to 2020.

Wang conceded that the regional schemes to date had experienced some flaws, including illiquid trading and a “lack of professional staff”.

Emission options

Much detail is yet to be resolved regarding a Chinese national market, if that were to proceed, and critically whether that would include an absolute cap on carbon emissions.

The alternative would be a limit which slowed growth in emissions, rather than a firm cap beyond which these could not rise. Most of the regional Chinese carbon markets launched to date have an absolute cap on emissions by industry.

The European Union presently has the world’s largest carbon market, capping polluting industries such as power, steel and cement, which account for nearly half the bloc’s emissions.

The scheme allocates a fixed supply of emissions permits, or allowances, thereby imposing an overall cap.

Carbon pricing

A national Chinese scheme would be a significant demonstration that the world’s biggest carbon emitter was serious about reducing its contribution to climate change.

China and the United States have long been at loggerheads over carbon cuts, dragging down global efforts to deal with the problem.

A national carbon market would arguably put China ahead in political effort, and erode US competitiveness fears over adopting its own national carbon caps.

A draft US climate bill, including a national emissions cap, failed to pass the Senate in 2009, largely because of such concerns.

The NDRC announced in 2011 a plan to develop seven official ETS pilot programs, in Beijing, Shanghai, Tianjin, Chongqing, Guangdong, Hubei and Shenzhen.

Hubei officially launched the sixth scheme last month, and Chongqing is expected to introduce the final pilot later this year.

“Carbon markets are now officially open for business in China,” the World Bank said in a report published on Wednesday, “State and Trends of Carbon Pricing”.

“The total 2013 allocations of these six pilots combined amounts to 1,115 million tonnes of carbon dioxide equivalent (annually), making China the second largest carbon market in the world, after the EU ETS.”

The post China expects to launch national carbon market in 2018 appeared first on Climate Home News.

Source: Flickr/Ben Reierson

By John McGarrity

The global carbon market will be worth €46 billion in 2014, up 15% from last year, as moves by the EU will boost prices and emissions trading schemes evolve in Asia, analysts at Bloomberg New Energy Finance said in a report today.

The report from BNEF said it expected prices of allowances in the EU’s emissions trading scheme to rise to €7.5 this year, up 50% from 2013, although oversupply in California’s system would mean that prices there would only rise very slightly.

“New carbon-trading programmes are emerging in China and South Korea, and policy-makers in Europe are taking clear steps to ensure that carbon prices drive future emission reductions,” said Konrad Hanschmidt, head of carbon analysis at Bloomberg New Energy Finance.

Late last year the EU Parliament and Council of Ministers approved the ‘backloading’ of auctions of 900 million European Union carbon allowances, that would otherwise have taken place in 2014-16, into the later years of the decade.

Today European governments approved the ‘backloading’ of auctions of 900 million European Union carbon allowances that would otherwise have taken place in 2014-16, into the later years of the decade, and permits are expected to be withdrawn from the market after April.

World carbon markets have been on the ropes over the past several years, as the global economic downturn prompted prices of EU allowances to fall 90% from their pre-recession peak, while the value of UN-backed offsets that finance low carbon projects in developing countries became almost worthless.

The cause of carbon trading also hasn’t been helped by the newly-elected Australian government’s decision to scrap the country’s carbon trading scheme.

While the Bloomberg analysts said there was room for some optimism this year, the report said there were mainly reasons to be cautious.

“Carbon markets have been on a roller coaster over the last few years and we continue to see a stomach-churning ride ahead,” said Guy Turner, chief economist at BNEF.

He added: “The roller coaster could well take another dip downwards towards 2020 if the backloading rules remain in place, as they would force supply to increase again in the latter years of the decade.”

And although the measure has enabled prices to pull further away from record lows, the price of carbon in the EU is likely too far below the levels required to encourage new technologies such as carbon capture and storage.

The worth of the global market remains far below its high water mark of €98 million in 2011, according to BNEF figures, which was based on volume of 8.7 billion carbon permits traded.

They added that volume in global carbon markets would likely fall to 8.3 billion permits in 2014, down from around 10 billion last year.

The post Global carbon market to rise 15% in value in 2014 appeared first on Climate Home News.

(Pic: The Solar Industry)

By Nilima Choudhury

Nine north-eastern US states running a regional carbon market say the Obama Administration needs to make emissions trading a cornerstone of its efforts to address pollution and climate change.

A submission from the Regional Greenhouse Gas Initiative, known as RGGI, calls on the government to “empower states to develop market-based greenhouse gas (GHG) emission reduction programs”, arguing this is the most cost-effective and efficient way of making a transition to a low carbon power sector.

RGGI has operated since 2009, and includes the likes of Connecticut, Delaware, Massachusetts, New York and Rhode Island, and has capped power plant emissions in 2014 to 91 million tonnes of CO2.

The Federal Environment Protection Agency (EPA) is currently rolling out new regulations aimed at cutting emissions from electricity generation, specifically targetting older coal plants.

“RGGI has once again proved that state leadership provides the laboratory for innovation that federal programs can build upon,” said New York State Commissioner of Environmental Conservation Joe Martens. “The structure of the RGGI program offers an efficient and cost-effective template that can be tailored to the needs of states throughout the nation.”

Analysis: RGGI: proof carbon trading can work in the USA?

CO2 emissions from the power sector in the nine RGGI states dropped by more than 40% by 2012, even as the regional economy continued to grow.

Proceeds from the RGGI auctions from just the first three years of the program (2009-11) have reduced energy bills by more than $1 billion and added a net of $1.6 billion to the economies in the RGGI states.

Revenues are directed towards energy efficiency, renewable energy, direct bill assistance, and greenhouse gas abatement programmes.

Statistics indicate the popularity of carbon trading is growing both nationally and internationally.

As of December 2013, 17 countries have carbon pricing mechanisms either running or planned. According to a recent study by the World Bank these cover greenhouse gas emissions of 10 GtCO2e/y, equal to 21% of the 50 GtCO2e emitted globally.

Increasing pollution have forced China’s hand in implementing carbon markets and is now on course to roll out its fourth of seven pilot schemes, which will see it become the world’s epicentre of carbon trading.

According to the government, by 2014 it could cover 700 million tonnes of emissions, and by 2020 it could be worth US$ 3.5 trillion.

Justin Johnson, Deputy Secretary of the Vermont Agency of Natural Resources said RGGI is a powerful tool against the effects of climate change.

“Having witnessed the devastation caused by Tropical Storm Irene, Vermonters understand the threat that extreme weather events and climate change pose to our nation’s economic well-being.”

The post Nine US states call for Obama to back national carbon market appeared first on Climate Home News.

By Nilima Choudhury

Believe it or not, the statistics indicate carbon trading is growing – nationally and internationally.

As of December 2013, 17 countries have carbon pricing mechanisms either running or planned. According to a recent study by the World Bank these cover greenhouse gas emissions of 10 GtCO2e/y, equal to 21% of the 50 GtCO2e emitted globally.

Historically the UN’s Clean Development Mechanism (CDM) and the European Union’s Emissions Trading Scheme (EU-ETS) have dominated global markets. Both have suffered from plummeting carbon prices in the past year, a result of the economic slump post 2008 and the over-supply of credits.

But both markets are likely to be eclipsed by China, which is on course to roll out its fourth of seven pilot schemes, which will see it become the world’s epicentre of carbon trading. According to the government, by 2014 it could cover 700 million tonnes of emissions, and by 2020 it could be worth US$ 3.5 trillion.

“Two or three years from now, assuming current programmes run to schedule, carbon pricing will be in place in jurisdictions that together account for a little under a quarter of total global CO2 emissions from energy and industrial processes, Adam Whitmore of Rio Tinto told RTCC. “If carbon pricing in China extends nationally coverage will increase to over 40%.”

A graph from the International Emissions Trading Association (IETA) illustrates how the sector has grown since 2002, with the green line representing the proportion of global CO2 emissions from energy and industry that are priced, and blue indicating the proportion of world energy & industry CO2 emissions occurring in jurisdictions with carbon pricing.

Below we have outlined the key markets set to dominate the sector in the coming decade.

(Source: IETA)

Chinese Certified Emissions Reductions (launched 2013)
China has pledged to cut its carbon intensity by 40-45% by 2020 from 2005 levels and is developing at least seven pilot emissions trading schemes. Guangdong province will launch a CO2 emissions trading scheme in mid-December, following Shanghai and Beijing’s pilots last week. The smallest of the pilot markets is in Shenzhen which, unlike other schemes that cap emissions, its scheme is efficiency-based. Three more will follow next year.

Report: Shanghai & Beijing launch trading schemes

Mexican carbon credits MEXICO2 (2013)
The Mexico stock exchange’s first carbon credits trading platform, a non-binding initiative, launched in November 2013. Officials expect MEXICO2 to handle a million carbon credits in its first year of operation, doubling to two million in the second year with the aim of meeting its 30% reduction in CO2 emissions target by 2020.

Analysis: Mexico’s climate change laws

Alberta carbon pricing (2007)
Home to Canada’s tar sands, Alberta emits the highest amount of greenhouse gases of any Canadian province, accounting for roughly one-third of the country’s overall emissions in 2011. It was the first North American jurisdiction to regulate greenhouse gas emissions and implement a compliance carbon pricing program. For 2007-2011, Alberta’s carbon pricing system had achieved 32.3. million tons of reductions in CO2e and channelled $167 million into low-carbon projects.

Interview: Jody Williams on Alberta’s tar sands

EU Emissions Trading Scheme (2005)
Europe’s ETS is the biggest carbon market in the world, covering around 45% of the region’s greenhouse gas emissions. That’s more than 11,000 power stations and industrial plants in 28 countries, as well as airlines. It works on a cap and trade principle, with the ‘cap’ progressively cut forcing countries and businesses to develop more efficient and low carbon operations. In recent years it has struggled with plummeting prices of credits, but is still regarded as the gold standard for all carbon trading schemes.

Finance: EU directs 20% of budget to climate-related investments

Australian Direct Action Plan (2013)
It’s unclear whether Prime Minister Tony Abbott’s new climate plan will see carbon trading disappear, or continue under a new name. Abbott is trying to repeal Australia’s ‘carbon tax’ on the country’s highest emitters, and says he’s not convinced about the science behind climate change. But Peter Castellas, chief executive officer of the Carbon Market Institute, says proposed alternatives look like an emissions-trading system. “We will use architecture that is already in place and working well,” Environment Minister Greg Hunt is reported by Bloomberg as saying at the end of October.

Policy: Australia “should adopt 25% carbon reduction target”

US Regional Greenhouse Gas Initiative (2009)
RGGI is a cooperative effort among nine Northeastern and Mid-Atlantic States to reduce carbon dioxide (CO2) emissions from the electric power sector through coordinated state cap and trade programs. Proceeds from the auctions are returned to the states and invested in energy efficiency, renewables, climate change abatement, and direct energy bill assistance. The New York State Energy Research and Development Authority (NYSERDA) calculated that emissions in the RGGI region declined 33%.

Analysis: Is RGGI proof cap and trade works in the USA?

Kazakhstan Emissions Trading Scheme (2013)
In 2012, Kazakhstan began efforts to build a domestic ETS that began its pilot phase in January 2013. This market will aid the country in achieving its goal of reducing emissions 7% below 1990 levels by 2020, and it will make Kazakhstan the first Asian nation to undertake an economy-wide cap. Beginning in 2013, the Kazakh ETS imposed allowance surrender obligations on 178 companies, and the cap for these companies is 147 MtCO2e, which is the 2010 level for these capped companies, 55% of the nation’s total GHG output, and 77% of the country’s CO2 emissions.

Report: Kazakhstan contemplates Kyoto Protocol future

Californian Cap-and-Trade (2013)
It has been a year since California launched the US’ largest emissions cap-and-trade programme. By 2015, California’s program will expand to be about twice as large as RGGI. California’s economy-wide target for emissions reductions is to achieve 1990 level emissions by 2020. As the program progresses, both the portion of auctioned allowances and the scope of the cap will increase, resulting in anticipated auction proceeds of nearly USD $12 billion dollars in 2020. California will also be linking its programme with Quebec starting 1 January 2014.

Report: California and China sign climate pact

Québécois Cap-and-Trade (2009)
Despite Canada rescinding its Kyoto Protocol commitment, Québec adopted a greenhouse gas target of reducing emissions 20% below 1990 levels by 2020 in November 2009 using a cap-and-trade scheme. Four auctions of allowances per year, which began this year, are expected to raise a total of CAD $2.4 billion for the Action Plan on Climate Change. Approximately 96% of electricity in the province comes from renewable energy. As a result there are minimal reduction opportunities in the electricity and manufacturing sectors. Instead levies are placed on the transport sector.

New Zealand Emissions Trading Scheme (2008)
Under the Kyoto Protocol’s first commitment period (2008-2012), New Zealand committed to reducing its annual average CO2 emissions to 1990 levels with its ETS in force by September 2008. It is the only ETS in the world that includes emissions liabilities for land-use sectors: deforestation of pre-1990 forest land (as of 2008) and biological emissions from agriculture. However, in August 2013, Climate Change Minister Tim Grosser announced that it would adopt a 5% reduction target below 1990 levels by 2020. The country’s long-term target is a 50% emissions reduction below 1990 levels by 2050.

Analysis: Why are the Kiwis in a climate change coma?

Norwegian Greenhouse Gas Emissions Trading Act (2005)
The main Norwegian emissions mitigation policy is the GGETA which became active on 1 January 2005 and is one of the few countries in which a carbon tax and an emissions trading scheme significantly overlap. By 2020, Norway aims, as its Copenhagen Accord pledge, to reduce its GHG emissions by 30% relative to 1990 levels, and by 40% if there is an international agreement. The Norwegian emissions trading scheme was designed to be compatible with the EU ETS, and many of the features of the two programmes are similar.

Finance: Norway, UK & USA offer $280m for UN forests deal

South Korean Emissions Trading Scheme (2015)
Since 1990, Korean emissions have doubled and now slightly exceed Australia’s 600 million metric tons, making the country the world’s seventh largest greenhouse gas emitter. In April 2011, the South Korean government released its final draft for an emissions trading system, due to begin in 2015, modelled on the EU ETS, that outlines a three-phase programme. Korea also became the first Asian country to pass a national cap-and-trade system when the National Assembly passed this bill in 2012 almost unanimously.

Transport: South Korean city of Suwon goes ‘car free’

Swiss Reduction of CO2 Act (2008)
In 1999, Switzerland adopted the Act on the Reduction of CO2 Emissions (CO2 Act) as a supplementary environmental policy that centres on CO2 mitigation. The CO2 levy and voluntary ETS were designed to help achieve the Act’s goal of reducing emissions by 10% relative to 1990 levels by 2010. The total cap in that year was 3.42 MtCO2, covering approximately 7% of Swiss emissions. For 2013-2020, the Swiss ETS will move from a customized system to a standardised (EU-style) system, as Switzerland continues linkage negotiations with the EU.

UK Emissions Trading Scheme (2001)
The United Kingdom Emissions Trading System (UK ETS) was the first national, multi-sector emissions trading programme ever established to achieve its Kyoto Protocol commitment of 12.5% below 1990 emissions levels. 34 organizations and facilities agreed voluntarily to take part in the UK ETS, amounting to emissions reductions of 12 million tons CO2-equivalent (CO2e) between 2002 and 2006, which is 0.43% of total UK emissions over this period.

Report: UK strikes deal to work on climate with South Korea

Tokyo Cap-and-Trade (2010)
Tokyo was the first large-scale city to implement its emissions trading scheme. The government has set a target of 25% CO2 reduction relative to 2000 levels by 2020, and 50% below 2000 levels by 2050. The goal for Phase I of the programme (2010- 2014) is 6% reduction compared to 2002-2007 levels and the Phase II (2015-2019) objective is 17% reduction. The programme covers 40% of the industrial and commercial sectors’ CO2 emissions, which equates to 20% of all of Tokyo’s CO2 emissions. Unlike the EU ETS and RGGI, includes coverage of large-scale office buildings.

Japanese Cap-and-Trade (Planning phase)
Japan is the third biggest economy in the world, and, in 2010, its CO2 emissions placed it fifth among the world’s countries. As part of the Copenhagen Accord, Japan pledged to reduce GHG emissions 25% below 1990 levels by 2020, however, in a surprise announcement at climate talks in Poland recently, Japan said it would now aim to cut emissions 3.8% against 2005 levels by 2020. Momentum towards a mandatory, nation-wide trading scheme with absolute caps has stagnated since December 2010.

Report: Japan stuns UN by scrapping carbon reduction target

Indian Emissions Trading Scheme (Planning phase)
As of 2009, India was the world’s third largest CO2 emitter, and, through 2020, annual GDP growth is expected to be between 8% and 9%. By 2020, India is expected to contribute about 6% to global emissions. Since July 2010 there has been a nationwide carbon tax on coal for 50 rupees/ton of coal produced in and imported to India. Pilot ETS programmes are being launched in three states, Tamil Nadu, Gujarat, and Maharashtra.

Report: Mumbai and Kolkata at ‘high risk’ from climate change

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Source: Flickr / Foreign and Commonwealth Office

By Erwin Jackson

One of my fondest memories of the international climate negotiations was the day in December 2007 when Howard Bamsey announced on the floor of the plenary in Bali that Australia would ratify the Kyoto Protocol.

After years spent in the wilderness, it seemed that Australia would finally play a constructive and progressive role in global climate action. I think all of us Aussies at the talks felt a sense of pride in that moment.

We had come to this point in part because communities throughout Australia recognised that climate change matters an awful lot to our nation.

Years of crippling drought, ever increasing alarm from elements of the scientific community, and a feeling that action on climate change was a benchmark for whether our political leaders had a plan for the future all culminated in the acceptance by both major parties that we should implement effective domestic policies and join global efforts through formalising our commitments made ten years earlier in Japan.

Now, six years later, after a bruising domestic political stoush and the election of a Coalition Government, Australia threatens to be the first country to dismantle a barely newborn but credible carbon market. All independent analysis to date shows their alternative policy will struggle to meet even Australia’s minimum emission commitments.

Will the new reports of the Intergovernmental Panel on Climate Change (IPCC) impact any of this? The short answer is probably not right away.

Australia’s new Prime Minister Tony Abbott has been clear that he now accepts climate change as a real threat. The Coalition he heads, even during the election, reiterated its support to Australia’s emission targets of 5 to 25% reductions on 2000 levels by 2020.

Just last week, the new Environment Minister reiterated his government’s “in principle” support for Australia’s second commitment period target under Kyoto. They are likely to keep to this pitch for a little while yet and may even use the IPCC reports an opportunity to reiterate the Government’s support for climate science.

How the reports of the IPCC impact in the longer term is more complex and will interact with other arguably more important drivers in domestic policy making. The IPCC and the risks they report to Australia will be a backdrop against this.

In the short-term the key drivers are more likely to be a protracted political fight over Coalition attempts to repeal the emission trading scheme. Most now see this as being unlikely before late 2014 (or even early 2015) as the Labor party and the Greens will likely block attempts to do so while they retain the balance of power in our Senate.

After July 2014, when the new Senate is installed, the Coalition would need to negotiate with an unpredictable group of Senators from minor parties to get their way. It is uncertain whether the Government will be prepared to pay the price for securing their votes and whether their alternative policy can make it through the Parliament.

While the battle rages, the current carbon laws keep working. Businesses are already looking at interim measures to link our scheme to international markets earlier than the planned 2015, to avoid higher carbon prices. Labor would likely agree to this and the government will be under business pressure to compromise on this until (and if) they can remove the scheme altogether.

Many in business will also have an eye to the longer term. The Government’s alternative policy as it currently stands is not sustainable in the long-term. It is unlikely to be able to achieve sustain decarbonisation of the economy and meet short and long-term emission targets.

The Government themselves had said they would review post 2020 policies in 2015.

This is where the IPCC and its impact on international process are important. Clear progress internationally and on domestic policy in key countries like China, the US and APEC nations will signal to business here that whoever is in Government will need to implement a credible domestic policy framework.

This leaves the choice between policies that are likely to be more onerous and expensive than an emissions trading scheme linked to international markets.  The spectre of a more stringent regulator approaches and a myriad of sectoral approaches mimicking President Obama’s recent policy announcement will grow.

Business anxiety combined with growing climate impacts here and overseas, mixed with a lack of appetite in the community around the protracted politicisation of an issue they want something done about will through time inevitably focus the minds of whoever is in Government back on more effective action.

This at the heart of the ongoing and positive role the IPCC can play in Australia. It will highlight that physics will ultimately trump politics and that Australia has nowhere to hide from climate impacts and the inevitability of strong global action.

The post Comment: IPCC will show Australia that physics trumps politics appeared first on Climate Home News.

The European Parliament has narrowly passed reforms to the EU carbon market.

Amended changes agreed by the environment committee last month were passed with 344 in favour and 311 against.

The changes include a condition that the intervention will be a one-time event and a reduction in the number of withheld credits to 900m from the initial suggestion of 940m.

It is hoped that holding back the allowances, known as ‘backloading’, will limit supply and lift the price toward a level that might stimulate CO2 reductions.

The vote in Strasbourg was the second attempt to pass backloading proposals (Source: Flickr/European Parliament)

The previous proposal was narrowly rejected by 334-319.

The price of carbon in the EU has hit record lows this year due to an oversupply of credits.

This has been caused in part by the recession as the resultant decrease in industrial output also meant less emissions. Lower than hoped carbon reduction targets in the EU also means the cap on emissions has been set too high.

#backloading passed. COM is forced to prepare sectoral impact assessment before implementation. Much activity and for all the bad reasons.

— Marcin Korolec (@MarcinKorolec) July 3, 2013

YES! Despite heavy-handed lobbying, and after very substantial debate, #EP supports EC #backloading proposal.Thanks and congrats to @Groote!

— Connie Hedegaard (@CHedegaardEU) July 3, 2013

Good news, the EU Parliament has just passed the EU ETS backloading proposals – next stop structural reform.

— SSE (@SSE) July 3, 2013

The plans must now be passed by the European Council which allocates weighted votes to each of the EU member states.

If the 12 countries that have signed up to a UK call for yet greater changes to the system provide their support for backloading, 180 of the 260 votes required will be guaranteed.

The proposal by the UK and back by France, Italy and Germany calls for deeper structural changes to boost the effectiveness of the Emissions Trading Scheme (ETS) in the longer term.

Backloading is viewed as a quick fix and the European Commission is now charged with developing these larger reforms. Davey and his supporting European peers want those plans ready by the end of this year.

Reaction

Rob Elsworth of the carbon market campaign group Sandbag, echoed calls for greater changes.

“This is a positive outcome after months of uncertainty. All eyes are now on Member States to reach a position as soon as possible,” he said.

“Once a backloading decision is agreed, this must act as a stepping stone to deeper structural reforms of the EU ETS that restore the balance of supply and demand in the carbon market and prevent the ETS from compromising the environmental effectiveness of other climate policies.”

The Climate Markets and Investment Association (CMIA), which represents KPMG, Deutsche Bank, Bank of America among others, welcomed the decision.

“This is a great result albeit after a second bite at the cherry. This positive vote now gives the EU ETS breathing space for more profound supply side reforms to be enacted that will prevent the need for another backloading debate in the future,” said Miles Austin, executive director, CMIA.

Despite the changes, analysts fear the changes will be insufficient to raise the cost of emitting a tonne of carbon.

“The Parliament has voted to backload 900 million allowances under stricter conditions than the initial proposal, but the surplus of permits is around 2 billion at present,” said Zoe Grainge,a senior analyst at IHS.

“The backloading might therefore have limited impact on the price of carbon. Also, these proposals now need to be passed into law by the Council, and Poland has already said it would oppose any measure to increase the price of carbon. The way to ensure the EU ETS remains a key policy tool for the mitigation of climate change is longer term structural reform, and at present there is no clarity on how the market will work post-2020.”

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The EU carbon market could cancel out 700m tonnes of greenhouse gas reductions if ambitious reforms are not made, the campaign group Sandbag has claimed.

A new report published by Sandbag claims CO2 cuts from other EU policies after 2020 as roll-over surpluses further weaken the effectiveness of the EU’s flagship climate tool.

The recession reduced demand for carbon credits while the absence of stricter EU climate targets meant supply remained too high.

MEPs will vote on a plan to reduce this excess on July 3 but many feel the measures on the table do not go far enough.

The EU must tighten the rules of its carbon market or risk cancelling out some of its other emission cutting legislation (Source: Flickr/European Parliament)

Without more aggressive action to reform the ETS, Sandbag warns that it will no longer fulfill its objective to cost effectively reduce emissions and combat global warming.

“A minimum level of ambition must be restored to the EU ETS if is to be prevented from cancelling out other policies and damaging Europe’s international credibility,” said the report’s author Damien Morris.

By allowing unused credits in each phase of the scheme to be passed on to the next, the surplus is growing. Meanwhile credits earned from other carbon offsetting platforms are also jeopardising the EU Emissions Trading System’s (ETS) integrity.

Some of these more questionable credits are considered to not be “additional” as in the emission reductions involved would have happened anyway.

“In the run up to a new international climate agreement, Europe can ill afford to hoard carbon allowances the EU ETS has stored up from the recession and other climate policies. The backloading debate must serve as a stepping stone to a separate decision to permanently cancel at least 1.7bn allowances,” he added.

A previous vote at the European Parliament rejected plans to hold back 940m credits from the next phase of the market. Revised plans agreed last week have cut that number to 900m and include a condition that the intervention will be a one off.

Sandbag claims 1.7bn credits must be not just withheld from the market, but permanently removed.

The post EU carbon market to ‘cancel out’ 700m tonnes of CO2 cuts appeared first on Climate Home News.

Revised plans to boost the EU carbon market have been approved by the bloc’s environment committee.

Supporters will now try for the second time to win approval of the European Parliament.

The previous proposal to withhold 940m credits from the scheme to reduce the supply and boost flagging carbon prices was narrowly rejected by 334-319.

Intensive campaigning by the BusinessEurope lobby group and around a dozen MEPs who admitted to “pressing the wrong button” clouded the result.

Amendments, including a condition that the intervention will be a one-time event and a reduction in the number of withheld credits to 900m, were approved by the Environment Committee allowing the new proposal to be included on the agenda of the European Parliament’s sitting in early July.

Wednesday’s vote means the European Parliament will now rule on the issue in July (Source: Flikcr/EuroParliament)

Prior to the vote European Climate Action Commissioner Connie Hedegaard admitted the EU Emissions Trading System (ETS) was in trouble but warned the alternative to it was far worse.

“It’s not dead but it needs some life support,” she told the BBC on Monday. “That is what the MEPs have once again, a vote is coming up in two days and I can only encourage everyone to understand that all kinds of alternatives where you put a price on carbon are worse.

“The alternative is a frag patchwork of 27 different ways of doing things. I hope the parliamentarians will get their act together, particularly some of the British conservatives,” she added.

Friction

The largest party at the European Parliament, the European People’s Party (EPP), a centre right grouping, voted against the proposal last time they were in front of the plenary in April.

There are now signs that the EPP position is softening, which could be enough to ensure the smooth passing of the compromise deal.

“I think there is still a large opposition that just wants to kill climate policies. From my perspective they will always be pushing the wrong button,” Bas Eickhout, a Dutch Green Party MEP told RTCC earlier this month.

“The more serious part of the EPP has seen that this vote was causing a great outcry and they are realising they must build bridges, including internally. There is a group within the party that is in favour and a group heavily against, they were winning previously. Now those in the middle are taking their responsibility and looking for compromises,” he added.

Signs of the EPP split were evident ahead of today’s committee vote.

Eija-Riitta Korhola, the EPP point of contact for the issue stressed that the party’s position in the committee should “not tie the hands” of the party’s MEPs in wider parliament once it is their turn to vote next month.

Austrian MEP Richard Seeber then intervened to stress that the EPP’s position would be decided next week and that Korhola did not speak for the party.

Support for the new proposals is now expected to be sufficient to carry it through the vote in July.

“When we compare today’s results to the ENVI vote on 19 February, we see a much stronger chance of an increased number of Parliamentarians supporting backloading in Plenary in July” said Hæge Fjellheim, senior analyst at Thomson Reuters Point Carbon. “Despite the Green Party’s initial reluctance to the amended version of backloading, we expect they’ll support the plenary.”

More change

There is a growing consensus that the backloading proposal by itself will not be sufficient to save the ETS in the long term.

A paper by the UK based think tank Policy Exchange has called for larger structural reforms to the ETS to ensure it can continue to drive down emissions in the EU.

Critics say the ceiling on emissions, which determines how many are distributed among the companies participating in the scheme has been placed too high. If the EU decides to increase its greenhouse gas reduction targets, this could lower the cap and help increase the cost of emitting.

The post Revised EU carbon market fix passes first hurdle appeared first on Climate Home News.

China’s first carbon market will launch on Tuesday amid warnings that it could face similar oversupply problems to the EU system.

The city of Shenzhen is part of the Guangdong regional emissions trading platform, one of seven pilot programmes viewed as a pre-cursor to a national scheme.

The EU and China have collaborated on the market’s design. Ahead of Tuesday’s launch analysts Thomson Reuters Point Carbon have warned that Shenzhen could also mimic some of the problems faced in the EU.

The EU Emissions Trading Scheme (ETS) has reached record lows this year with unambitious climate targets setting the limit on emissions too high and a drop in industrial output reducing the demand for carbon credits.

A power station in Changchun (Source: Flickr/Theseoduke)

The EU is currently attempting to push through plans to hold back part of the next allocation of carbon emission allowances in an effort to adjust the supply-demand balance, but Point Carbon analyst Hongliang Chai warns that particular solution might not fit in Shenzhen.

“We see a significant risk of over-allocation. The ex-post adjustment isn’t a cure-all, and will probably not solve this issue – especially since the pilot will cover indirect emissions [the electricity and heat used by a firm but generated elsewhere]. Uncertainties on future emissions and allowance prices still loom large in determining the scheme’s futures success,” said Chai.

The government will allocate 100m permits for 2013-2015, equivalent to 100m tonnes of CO2 for free. Point Carbon’s analysis predicts that emissions will be closer to 90m during the same period.

The Shenzhen scheme will cover 635 companies will a target to reduce emissions intensity, CO2 per dollar of GDP, by 21%.

“While the official list of covered companies is yet to be published, big names such as PetroChina, CNOOC, China Resources and Huawei will probably be covered, due to their business in the city,” said Chai.

“Despite market uncertainties, we forecast the covered companies will reduce total emissions due to such an ambitious intensity reduction target set by the government,” he added.

Updated reforms to the EU market will begin their passage through the European Parliament on Wednesday when the Environment Committee votes on a compromise deal, negotiated after the first proposals were rejected by the parliament.

Experts from the EU are helping China to design its pilot schemes and a planned national carbon market that could be functioning as early as 2017 despite an official target closer to 2020.

As the world’s largest greenhouse gas emitter, the country’s efforts to reduce emissions are closely scrutinised.

In many of China’s major cities, air pollution, not climate change concerns have driven strong public demand for cleaner more efficient energy and transportation.

The post China’s first carbon market faces ‘credit oversupply’ dilemma appeared first on Climate Home News.

The current problems created by the European Parliament’s decision not to back reforms of the EU carbon market reveal a number of key issues on carbon pricing.

First, in the globalized world, firms participating in a closed-circuit carbon market like the EU ETS run a substantial risk of losing out to free-riding foreign competitors.

Carbon pricing inherently requires being a global system if the institution is to provide firms with a level playing field. If a carbon price goes up globally without discrimination, people will shift to a low-carbon lifestyle and won’t complain about different “pollution prices”.

Pricing carbon must also be realised in the market devoid of manipulations on the supply and demand of allowances. Even containing price fluctuations within a narrow band is heresy in the market economy.

Mutsuyoshi Nishimura is Japan’s former chief climate negotiator

And pricing of carbon must cover the whole economy, not just emitting firms, so that it delivers its full force in pushing investment and consumption towards a low-or zero-carbon future.

Finally, pricing of carbon must be instrumental in achieving the global temperature target to limit warming to 2°C. No major climate effort should be launched without regard to this ultimate global objective.

No doubt the EU policy makers are working towards realizing a global ETS eventually, but the current European design remains way behind that. No wonder it has long been trouble prone.

Whatever surgery might be administered after the April 16 decision against backloading, woes will come back if it does not tackle the above points.

The pink circles represent how much fossil fuel can be burned to stay within 2C of warming. The blue is potential reserves. Copyright: Carbon Tracker Initiative and Grantham Research Institute, LSE, 2013 CLICK TO EXPAND

Polluter pays

So what is the proper design that meets all above considerations?

As experts agree that there is logic to having a global price for CO2 emissions, here is one solution where such logic is put into practice in a global carbon market.

First, governments globally must put a lid on global emissions so as to realise the 2°C temperature target. This means capping emissions at a level that simply won’t allow the global greenhouse gas output to go beyond what science says is needed to achieve such a target. [See the Carbon Tracker Initiative and IEA estimates]

This limited amount of global emissions is the carbon budget for 2°C. Since this is a new “global commons” it will be collectively owned by an assembly of governments. The assembly will sell them as allowances in the market.

Fossil fuel companies that extract or import energy resources must buy allowances and pass the cost on to the downstream economy so that emitting firms and consumers of carbon products bear ultimately the cost of using limited global commons.

This would mean the 2°C will be achieved and a universal market price created, a market price that can be integrated into the whole world economy and a level playing field assured. No manipulation of prices.

As the carbon price goes up globally, all firms and consumers of all countries shift from high carbon to low carbon investment and consumption.

When thre EU voted against reforms to its regional carbon market, it highlighted the shortfall of such schemes, says Nishimura (Source: Flickr/EuroParliament)

Revenues

Furthermore, by instituting a mechanism to channel those sales revenues of allowances to help all countries in need, the global carbon market can give rise to a major source of climate financing that is decoupled from public coffers.

This is the only possible way for carbon pricing to work without causing the troubles the EU ETS is embroiled with today.

This global carbon market proposal will allow all fossil fuels including coal to be burnt as long as it is price competitive. No consideration other than the carbon price should come into play since the overall cap is set to achieve the 2°C.

Linking various ETS platforms is only a half solution…as it does in fact reduce costs but fails to achieve the temperature target. Those individual systems are built on the basis of ambition-driven national pledges to reduce emissions reductions (QELROs) and not on the basis of the carbon budget for the specific 2°C target.

Tortuous climate negotiations in year after year shows us a “failure of ambition”. Aggregated ambitions of governments shall never achieve the 2°C target, not even 3°C. Our failing efforts will surely bring us to a furnace of 5°C of warming.

Europe should not give up its crucial leadership just because of the current woes.

The merit and value of carbon pricing is not called into question. The design is.

Europe can continue spearheading renewed leadership by re-designing carbon pricing in ways to stop warming before we pass our temperature target. It can do it cost-effectively and substantially reduce poverty, not just energy poverty but poverty writ large.

The post Comment: why it’s time for a global price on carbon appeared first on Climate Home News.

That’s the warning from Dolf Gielen of the International Renewable Energy Agency (IRENA), who says a variety of policy instruments must be used to support wind, solar and hydro projects around the world.

“If you look at the countries that have shown rapid uptake in recent years it’s not necessarily the countries with a carbon price in place,” said Gielen, director of IRENA’s Innovation and Technology Center in Bonn.

“I think it’s important not to base a policy only on the carbon price, you have seen what has happened in Europe and that is not a good advert for banking on carbon trading alone.”

Gielen pointed to US tax incentives and Brazil’s auction process as good examples of thriving renewable energy sectors operating without blanket carbon pricing. The EU carbon market is currently stagnant with domestic policies propping up interest in the sector.

RTCC Video: Dolf Gielen, IRENA, on successful renewable policies minus the carbon trading

Dolf Gielen Bonn 2013 from Responding to Climate Change on Vimeo.

The post IRENA: carbon markets cannot support renewables alone appeared first on Climate Home News.

The firm now believes it is unlikely that the plans to withhold 900m carbon credits in order to boost the flagging price and address an oversupply of credits, will come to pass.

A European Parliament vote on April 16 rejected the so-called backloading proposal by 334-315 with the legislation sent back to the Environment committee for tweaking. A new vote could be held as early as June.

“While there remains the possibility that the proposal may come back to plenary for a new vote before summer, it remains unlikely that backloading will ever be implemented,” said Hæge Fjellheim, analyst at Point Carbon.

Point Carbon has cut its price forecast on the cost to emit a tonne of CO2 45% (Source: Flickr/waldopics)

“It’s hard to see what Matthias Groote, the Environment committee chair, can do to the proposal to persuade the ‘No’ MEPs to change their mind given the stalemate in the debate,” said Marcus Ferdinand, analyst at Point Carbon.

Following a successful vote the plan would need to be accepted by qualified majority at the European Council where votes are weighted by size. Germany is keen to sit on the fence at the council with both members of its ruling coalition pulling it in opposite directions.

“The only game changer would be if Germany decided on a position in Council, but there is nothing that leads us to believe this would happen before the German elections in September.

“Timing is key for backloading, so any further delays at this stage in the process would render the whole measure irrelevant,” added Ferdinand.

Point Carbon has revised its carbon prices down 45% for the third phase of the scheme, which started this year runs until 2020. It predicts a price of €3 per tonne in 2013 and an average €6 through the full term of the phase.

The low prices are attributed to the schemes inability to adapt to the economic downturn that cut industrial output and the demand for carbon allowances.

Weaker than anticipated climate change targets also means the total cap on emissions is higher that it would have been otherwise.

The post EU carbon market reform unlikely – report appeared first on Climate Home News.

MEPs have voted against plans to reform the struggling European carbon market in Strasbourg today.

The proposal would have held back more than 900m carbon credits from the next phase of the Emissions Trading Scheme (ETS).

High emitting sectors are granted a set number of emissions allowances in each phase of trading. More aggressive climate policies see the number of carbon credits issued fall.

The amendment to block the reforms was backed by 334 MEPs with 315 against.

The process, known as “backloading” was designed to address the oversupply in the market that has resulted from reduced economic output and lack of demand as a result of the failure of the EU to make more ambitious emissions reduction pledges.

(Source: Flickr/Waldopics)

The result has been a collapse in the carbon price from a high of €30 to around €4 in recent weeks. Low prices reduce the incentive for sectors covered by the ETS to limit their emissions output. The price fell to €2.67 on the news.

The chief economist of the International Energy Association (IEA) told the Financial Times that failure of the carbon market would reach beyond Europe’s borders.

“It is important not only for Europe, but also for the global fight against climate change,” he said.

“Europe is the region that started this endeavour, which the world, perhaps with some modifications, has to follow. If we say that this exercise didn’t work out, this would be a loss not only for Europe but for everybody,” added Birol.

Next steps

While backloading has been rejected in the near term, The European Commission will continue to propose ways to Parliament to make the ETS stronger.

Analysts said all along that backloading was the first of a number of steps required to reform the ETS and was never the silver bullet on its own. Larger structural reform, to make the market more flexible are likely in the longer term.

Carbon prices will likely remain stagnant in the meantime however.

EU #carbon price plummets after #backloading proposal is rejected by the EU Parliament.twitpic.com/cjqv51

— Seb Henbest (@SebHenbest) April 16, 2013

European elections next year will place the ongoing debate in a new context.

European Commission for Climate Action Connie Hedegaard said via a statement:

”The Commission of course regrets that the European Parliament has not approved the back-loading proposal. However, it is worth noting than when it was suggested in the second vote that the Parliament finalised its rejection right away, this was not supported. The proposal will now go back to the Parliament’s Environment Committee for further consideration.”

Fragmentation

Matthias Groote, the German MEP who sponsored part of the backloading plans tweeted: “Renationalisation of climate policy has now begun. Bad for the environment and for international negotiations.”

Sarah Deblock, EU Policy Director at the International Emissions Trading Association (IETA) told RTCC yesterday that the risk of weakening the ETS would be a patchwork of national carbon taxes across member states.

“It makes more sense to have a strong ETS than taxes at the national level for instance. We see this as a worrying trend,” she said, giving the UK carbon floor price as an example.

Rob Elsworth of the campaign group Sandbag called the vote “unfortunate”.

“It sends the wrong message to companies, to the public and the international community. It’s now incumbent on those MEPs who said they support the long term success of the EU ETS to act to prevent the EU’s climate policy from drifting dangerously off course. In the meantime, Member State climate policies are now likely to become more fragmented and this will have a negative impact on the common market.”

The post European Parliament rejects carbon market reforms appeared first on Climate Home News.

On Tuesday the European Parliament’s 748 MEPs will vote on whether to withhold more than 900m carbon credits from the next phase of its emissions trading scheme (ETS).

RTCC runs through the who, what, when, why of the proposals that could reinvigorate the European carbon market, the bloc’s most important emissions reduction tool.

What is it and why now?

Backloading would reduce the supply of ETS credits and increase the price that high emitting sectors must pay to emit more than their share of greenhouse gases.

It will also correct the distortion suffered by the market as a result of two outside factors. First, the economic downturn that reduced industrial output meaning businesses emitted less of their predetermined allowances.

Secondly, the absence of increased emission reduction targets by other developed countries meant the EU stuck to its fairly unambitious goal of reducing its own emissions by 20% by 2020. Efforts by others would have encouraged the EU to up this goal to 30%, meaning less emissions allowances would have been allocated in the first place.

By the end of 2011 there was a surplus of 955m credits.

These problems can’t be reversed and the effect of too much supply and not enough demand has been a free falling carbon price from the dizzy heights of €30 a ton to between €4 and €5 in recent weeks.

A yes vote would shift the plans up the chain of decision making in Brussels to the European Council where a qualified majority among the 27 member governments would be required in a vote weighted in favour of the largest nations.

Last month European Climate Commissioner Connie Hedegaard said it made no sense to discuss making larger structural changes to the carbon market if backloading was voted down.

“There is no point talking about what we’ll do for the patient in the long term if it is going to die in the short term,” she said as an event to launch a Green Paper on Europe’s climate and energy framework for 2030.

Carbon trading affects the price you pay for your energy, the effectiveness of efforts to fight climate change and the ongoing development of a low carbon economy. Given the size of the contribution that the Green Economy has made in countries like the UK, there is plenty at stake.

Who is against the plan?

Opposition to the reforms has come from several sources. There are those who dislike all forms of carbon markets as a whole, arguing that they simply shuffle emissions around the globe.

Others are concerned about the effect a strong carbon market could have on their economies at a time of financial upheaval, such as Germany’s junior coalition partners, the Free Democratic Party.

Then there are government’s such as Poland, whose economies are inextricably linked to heavy industry and coal fired electricity.

Poland’s Environment Minister Marcin Korolec has framed his opposition in terms of the free market. He says there should be no meddling. With Poland relying on coal for more than 90% of its electricity, a low carbon price also suits the country economically. It leaves big polluters with a smaller bill.

Emissions from sectors covered by the ETS are falling, so the market is delivering argues Korolec, who will preside over the UN climate change talks in Warsaw later this year.

@eppgroup and now@ecrgroup against #backloading. Tuesday will pitch interventionists against liberals, regulation against market.

— Marcin Korolec (@MarcinKorolec) April 12, 2013

Who is in favour?

Business has lobbied on the ETS’s behalf.

Shell, Unilever, EDF, Swiss Re and IKEA have joined the more predictable support from the renewable energy sector.

The European Wind Energy Association’s (EWEA) members described the short term fix as a must to ensure the carbon market’s survival.

“We…urge you to support backloading as a short-term measure to ensure the continuation of the EU ETS market,” they wrote in an open letter to MEPs.

A strong ETS is viewed as an important long term signal for investments in low carbon technology. Supporters say it represents the best route for certainty in Europe at least, encouraging low carbon investment.

Ministers from Germany, UK, France, Italy, Sweden and Denmark added some political muscle to the debate urging MEP’s to back the proposals too.

Sarah Deblock, EU Policy Director at the International Emissions Trading Association (IETA) told RTCC it is important that the carbon market gets a strong endorsement.

“If it goes through it would be very helpful for the market to have this political guidance that the MEPs are keen to address the challenges and maintain the ETS remains the key climate policy at the EU level,” she said.

“A yes vote sends the signal that there would be an EU wide instrument, as opposed to national measures which we are seeing develop. It makes more sense to have a strong ETS than taxes at the national level for instance. We see this as a worrying trend,” she says giving the UK carbon floor price as an example.

“Backloading is the only proposal on the table to address the oversupply in the short term,” she adds.

The list of companies supporting backloading is extensive and a little surprising too

What effect will it have overseas?

The European carbon market has also formed the basis of schemes further afield in China, Australia and South Korea. Implications could reach beyond the 27 member states.

South Korea’s deputy environment minister told Reuters PointCarbon a no vote could lead to a cut in ambition of their own scheme.

A spokesperson for Australia’s climate change minister Greg Combet told RTCC that they remained committed to a two way link up between their own system and Europe’s in 2018.

Most environmental NGOs back the proposals but some would like to see more radical changes of the ETS to make it more flexible in the future.

With Europe seemingly united on the need for ambitious climate action, some have been surprised that the vote is so close.

It was initially a matter of tinkering with the existing system. Now it has become a litmus test for climate ambition among the 27 member states.

IETA has been keeping a headcount of MEPs’ voting intentions. It’s last count before the weekend had 339 in favour, 321 opposed and 88 yet to confirm.

Laura Dzelzyte, director of the advisory firm CF Partners and a former advisor to Lithuania’s Environment Minister at the UN climate talks told RTCC the issue had become over-sized.

“I think it’s unfortunate that what should have been a technical question, turned into political scaremongering. There has been some damage done in terms of communicating what ‘backloading’ is trying to achieve,” she told RTCC.

“Instead of saying that it will ‘rescue the EU ETS’ by raising prices, I think the more accurate way to describe this exercise is allowing flexibility of the instrument to bring it in-line with the factual and economic context.

Dzelzyte says the reforms “will not shoot prices through the roof”, but would help to bring the balance between supply and demand closer to reality in a post-recession climate.

“What should have been a question about improving a policy instrument design became a vote for or against raising the carbon price and so raising energy prices in the EU. This formulation attracted a wrong sort of debate and could be voted down for the wrong reasons,” she warns.

What happens if there is a no vote?

If MEPs vote ‘No’ it will be a bitter blow to the European Commission which has pressed the issue hard and feels the ETS has a central role in European climate policy.

Dzelzyte does not fear for the EU’s climate intentions should the ETS fail to get the shot in the arm it so badly needs.

“Even if we have a ‘no’ vote on Tuesday, the EU will stay committed to greenhouse gas emissions reductions and choose an appropriate and acceptable instruments to continue,” she says.

“No policy tool or its design should be a sacred cow, particularly in the development stage. It has to serve the purpose it is intended for. If a policy instrument fails to achieve what it’s meant to, it has to be adjusted or alternatives found.”

Voting no could open the EU up to criticism at the international climate negotiations, where it is already targeted by some for being unambitious.

Dzelzyte believes the real lesson is for other nations who are designing their own ETS and the importance to engineer in a degree of flexibility.

What next if there is a yes vote?

A yes vote will mean the decision being bumped to the European Council where a vote weighted in favour of the larger EU members would take place.

The potential of an abstention by Germany would reduce the threshold for the necessary qualified majority opening the door to Poland and its allies.

Should it pass, more changes to the EU ETS could be expected in the future as it looks to integrate more flexibility.

The potential strengthening of the EU climate targets to 40% by 2030 could also help to boost the ETS in the future.

What will happen?

Dzelzyte isn’t keen to guess what will happen with no clear swing of momentum in the air in Brussels.

“I think the mood is muddled. Some MEPs know where they stand and thus lobby their positions but many are torn in between as there are strong arguments for and against.”

The largest party in the Euro Parliament, the European People’s Party (EPP) has said the majority of its members will be voting against but the IETA straw polls suggest it is all to play for.

“Backloading might sneak through eventually but it won’t happen before 2014,” Kash Burchett, senior European energy analyst with IHS Energy told RTCC in February.

“We might have to wait for a new tranche of MEPs to have another go after the 2014 election, that means no action till 2015. Until then we are going to be looking at some pretty flat carbon prices,” he said.

Some members, the UK for example, think backloading should be looking to withhold closer to 1.2bn permits from the market, a figure Burchett supports given that the current proposal of 900m is “unambitious” in his view.

Even once this round of the debate is done with, it is likely to be just the first in a line of proposed amendments as supporters look for short term fix to those flat prices.

The post Why does the EU carbon market vote matter? appeared first on Climate Home News.

Failure to reform the EU carbon market could distort trade in the Eurozone and waste eight years of climate action, a group of influential Ministers has warned.

UK energy and climate chief Ed Davey and colleagues from Germany, Italy, Sweden and Denmark called on MEPs to back proposals to prop up the flagging Emissions Trading Scheme (ETS) in a crucial vote on Tuesday.

“Without sustainably strengthening the ETS, eight years of climate action will be lost, creating a serious threat for the existence of our most cost efficient climate policy instrument,” they wrote in an open letter.

The European Parliament vote will decide whether to withhold more than 900m carbon credits from the next round of the cap and trade system, a process known as backloading. This would address the surplus of emission allowances that has seen the cost of emitting a ton of CO2 fall to less than €3 at times this year.

A number of big businesses back the reform of the EU ETS

“If the ETS lost its central role in Europe, Member States would possibly introduce more unilateral measures for climate protection in order to incentivise sustainable investments in their industries and to enforce their national climate targets,” they warn. “This would lead to new competitive distortions in Europe.”

Peter Altmaier, Germany’s Environment Minister said it was important to spell out the importance of the changes to the system’s long term future.

“We’re struggling to explain to honourable members of the European Parliament how important it is to provide a signal we so badly need in order to make ETS more effective and to increase its attractiveness worldwide,” he said.

With the incentive to conserve carbon credits valued so lowly, supporters of the green economy fear its effectiveness is also being jeopardised.

“The current low carbon price, caused by the large oversupply of allowances in the market, risks damaging growth and investment in green technologies,” warned Ed Davey, the UK’s Secretary of State for Energy and Climate Change.

UK government statistics revealed that last year one third of the country’s economic growth had been generated by the green sector. Businesses including 3M, EDF, E.On and Alstom have backed the proposals.

Voting dispute

Backloading will require the support of the European Parliament where the largest party, the European People’s Party has said it expects the majority of its MEPs to vote against the plans.

It would then be passed to the European Council where a qualified majority is required in a vote weighted in favour of larger nations.

Opposition to the plans has been led by Poland which relies on coal for more than 90% of its electricity production. Poland has 27 votes at the European Council and would need 91 in order to block. Abstentions could reduce that target.

The ETS is the flagship EU climate policy. European Climate Action Commissioner Connie Hedegaard said on Twitter last night that the alternative to a strong ETS was “nothing but [a] patchwork of national regulations”.

EU Climate Commissioner Connie Hedegaard and UK Energy and Climate Change Minister Ed Davey fear the consequences of the reforms’ failure (Source: Flickr/EU Climate Action)

A combination of lower than expected CO2 reduction targets and reduced industrial output has increased supply and lowered demand simultaneously.

If the EU goal of reducing emissions by 20% by 2020 had been raised, the cap on emissions would have been reduced.

Bloomberg reported that carbon credits closed up 1.25 yesterday at €4.35. A price of €20 is the estimated minimum price required to adequately incentivise climate action amongst businesses.

The EU ETS is the basis for several international carbon markets overseas including in China, South Korea and Australia.

Australia plans to link its own system with the EU ETS in 2018. A spokesperson for Australian climate change minister Greg Combet told RTCC: “Australia remains committed to the link with the European Union carbon market.”

South Korea’s deputy Environment Minister Reuters PointCarbon that the failure to stimulate the market could result in less ambition from markets still under development overseas.

Open letter to MEPs on reforms to the EU ETS

The post EU climate ambition at stake in ETS vote warn ministers appeared first on Climate Home News.

China’s proposed national carbon market will not launch in 2015 as originally suggested after the country told the World Bank it will not begin work on it for another two years.

Beijing’s 12th Five-year plan for 2011-2015 announced that once seven regional pilot schemes were underway, a national market would follow.

But at a recent meeting of the World Bank’s Partnerships for Market Readiness (PMR), which helps countries to establish carbon trading programmes, China indicated work would only begin in 2015. Regional pilots are underway in several cities and provinces.

“There is a proposed schedule for development of Chinese carbon market: during 2011-2015, pilot program is the focus; from 2015, establishment of national market,” it said in a presentation given by Wang Shu, deputy director of China’s National Development and Reform Commission (NDRC).

A government official contacted through an intermediary said: ”National carbon market is unlikely to be completed in 2015.” RTCC understands that this is now also the expectation among carbon asset managers working in China.

Regional emissions trading pilot schemes are under way in China with the national carbon market to follow

This is also in line with comments by the Minister responsible for climate change Xie Zhenhua at a conference last year who said the China-wide scheme would be developed by 2020.

This amounts to a reinterpretation of the 12th Five-year plan whereby 2015 is the start not the end date for the policy’s development.

China is the world’s largest emitter of greenhouse gases. Its growing middle classes are increasing its demand for power which is currently being met largely by coal power.

Measures to incentivise lower emissions are part of the country’s longer term plan to move away from a manufacturing to a knowledge-based economy.

The document presented at the PMR also confirmed that talks on a carbon tax in China, that would place a fixed charge on emissions, are ongoing.

“For carbon tax, there is no confirmed schedule, and disagreement still exist and it is still in process of study and coordination.”

A spokesperson from China’s tax authority recently confirmed that a greenhouse gas levy would be integrated into existing pollution regulations, much the same as the US Environmental Protection Agency (EPA) has done for coal power plants.

Delay anticipated

A report by the Stockholm Environment Institute (SEI) published in April 2012 speculated that the 2015 deadline for a national scheme could prove too ambitious.

SEI acknowledged the attempts were “sincere and ambitious” but that there were a number of difficulties ahead.

“The delay was very much anticipated,” Guoyi Han, research fellow at SEI and one of the authors of last year’s report told RTCC.

“There are fundamental reasons embedded in the complexities of setting up a fully functional, market-based trading mechanism in a still heavily government intervened economic system. Others are technical and capacity relate,” he said.

“Still others might be circumstantial such as the slowdown of the economic growth last year in China. That may have eased the urgency on carbon emission control.”

Han said the challenge facing China is to find a way to make a system modelled on international set-ups such as the EU’s Emissions Trading Scheme (ETS) that is designed to operate within the Chinese context.

The post China to start work on national carbon market in 2015 appeared first on Climate Home News.

New markets are opening around the world, but their future requires strong policy signals from governments, which in turn can be a catalyst for investor certainty.

What could world leaders offer at the forthcoming World Economic Forum in Davos to rescue this vital but ailing part of the global climate framework?

By Joan MacNaughton

As world leaders meet in Davos, they should make time to consider what they can do to rescue the collapsing global carbon market and one of its most useful tools – the Clean Development Mechanism (CDM) of the Kyoto Protocol.

The need for huge investment – $10 trillion to 2030 in the energy sector alone, according to the UN – to tackle climate change shouldn’t need to be spelled out.

Nor should the fact that the private sector will have to provide the bulk of such funds, and will have the major role in developing and delivering projects which will result in reduced greenhouse gas emissions. And surely it is unnecessary to reiterate why all of this is urgent.

In Copenhagen, Cancun and Durban, world leaders took far-reaching decisions on the need to limit GHG emissions, and supported a broad agenda of transition towards low carbon and resource efficient economies.

In Doha, they inched further towards the actions needed but have yet to commit to targets commensurate with the scale of emissions reductions required to avoid potentially unmanageable consequences.

As a result, the carbon price which is intended to incentivise private sector flows is languishing. It has collapsed from €12/tCO2e in 2010 to less than €0.40/tCO2e currently. At these levels few existing projects can survive and few if any new projects will be financeable. And inevitably, the market is losing capacity as firms and expertise depart for other more attractive investment opportunities.

Without early and vigorous action, this important mitigation tool risks being squandered, and with it will go some valuable co-benefits such as sustainable development, North-South technology transfer and broadening access to energy. The CDM Policy Dialogue Report says that the CDM alone has mobilised some $215 billion in investment while delivering 1 billion tonnes of emissions reduction.

The cement industry a high emitting sector often subject to carbon trading schemes but the incentive to be efficient is eroded by low prices. (Source: Flickr/abarndweller)

What can be done?

Along with a programme of reforms to tackle the acknowledged shortcomings of the CDM mechanism (covering both operations and governance) the UN High Level Panel on the CDM Policy Dialogue urged governments to scale up their ambitions and set out some actions which could be taken meantime to tackle the imbalance of supply and demand.

Among these was the case for a fund to purchase CERs (emission reduction credits issued to projects under the mechanism).

I urge global leaders at Davos to voice support for such action. They should back calls for a fund or facility to help underpin the carbon market and within it the CDM. Such a facility could invest in CDM projects and programmes, with a view both to maintaining capacity and to continuing the provision of low cost mitigation, and could operate by purchasing and cancelling CERs.

Another possibility would be for the facility to purchase CERs on behalf of contributors who could in the future exercise the option to use them towards compliance with their own targets or commitments.

Who should pay?

Potentially, contributors to such a facility could include governments for whom domestic mitigation action might be more costly than investment through the global market, or sectors where the technology is not yet fully available to enable them to take effective large scale mitigation action – such as the aviation industry.

Why not allow concerned individuals to make contributions, perhaps with the incentive of a partial tax relief (perhaps one falling due in the future, such as inheritance tax) – thus spreading the financial hit on stretched government balance sheets?

Political and business leaders will meet in Davos in Switzerland to discuss economic growth, global health and environmental sustainability. (Source: Flickr/World Economic Forum)

Perhaps some existing or planned environmental finance facilities or international development assistance could be redirected into the facility, the rationale being that the gearing here would be extremely attractive – for a partial contribution to the cost of raising the carbon price would restore confidence sufficiently for private sector flows to restart – boosted also by the implication that carbon markets, and the validity of CERs, are here to stay.

And bear in mind too that the CDM itself is geared; one estimate suggests that each dollar of international carbon finance managed to leverage $10 of investment in climate mitigation in the last three years.

The detailed design of such a facility needs much further thought and work. But it needs to happen, and within the next year or so, if we are to retain the one mechanism which has mobilised significant private sector funds in the cause of identifying mitigation opportunities and taking advantage of them.

Without such action, the credibility and capacity built up around market mechanisms over the last several years will be lost – and will not easily be regained. That would be a huge blow to efforts to tackle climate change – and to the work under way to reform the CDM.

Joan Macnaughton is Vice Chair of the UN High Level Panel on the CDM and Executive Chair, World Energy Council Trilemma

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The value of the global carbon market fell 36% in 2012 to €61bn, according to analysts Bloomberg New Energy Finance (BNEF).

The group’s report also found that a combination of more frequent auctions and the drop in price saw the volume of transactions in the carbon markets grow by 26%.

Permits to emit a tonne of carbon, traded on domestic, international and EU platforms, averaged €5.7 in 2012 compared to €11.2 the year before.

There are reasons for optimism, with BNEF predicting an increase in the value of the global market to €80bn by the end of 2013.

Carbon trading usually requires high emitting industries to purchase credits if they exceed their greenhouse gas cap. Cheap allowances remove the incentive to reduce their emissions. (Source: Flickr/Mad House Photography)

“Even in the face of policy paralysis and depressed prices, trading activity in carbon markets has continued to grow in 2012. This shows how efficiently these markets work,” said Guy Turner, director of commodity research at Bloomberg New Energy Finance.

“Policy-makers now need to harness the energy of this market and create policies that will drive innovation, spur further reductions in emissions and reduce costs.”

One chink of light is that the EU Emissions Trading Scheme (ETS) is set for a restructuring that will see a scheduled release of allowances put on hold in order to create scarcity and increase the price of the permits.

A more ambitious EU emissions reduction target is expected in 2014 and demand for permits could increase as that begins to crystallise.

Further legislation on energy efficiency and the removal of “perverse” opportunities to earn credits, such as through the destruction of industrial gases with a large greenhouse gas effect, will further improve the European market.

Kyoto continues

The UN climate change talks in Doha at the turn of the year also provided some additional stability.

The continuation of the Kyoto Protocol ensures the future of the UN’s carbon trading mechanism till 2020 and increases the likelihood of its continuation after then. This could potentially happen under the new Durban Platform talks, which would mean participation from every country in the world.

“In 1997 at the time of the agreement, the Kyoto Protocol’s first commitment period was intended to cover 55% of global emissions yet in 2012 the number is only 15%,” said Miles Austin, director of the Carbon Markets and Investment Association (CMIA).

“Scientific consensus tells us far more clearly in 2012 than it did in 1997 that we need to take urgent action at scale today and we look to the actions of Governments to reflect this with far greater clarity.”

The next climate science report from the Intergovernmental Panel on Climate Change (IPCC) will be released in 2013 which could provide some of the necessary impetus to drive climate action and create demand for permits.

Carbon markets are already developing around the world without an international agreement from the UN however.

California opened its carbon markets at the turn of the year with prices reaching a high of $16 per tonne during early trading compared to the current price on the EU ETS of €6.43 (around $8.4) when trading closed on Friday 4th January.

Schemes are under way or in development as far afield as Quebec, Tokyo, New Zealand, Mexico and China.

“2013 should see the ushering in of functioning carbon markets in China, and this should increase the range of players interested in the carbon markets. We expect it to be an exciting time,” said Alyssa Gilbert, unit manager for carbon trading at climate and clean energy consultancy Ecofys.

MAPPED: The world’s carbon markets

CLICK TO EXPAND

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Monday 15 October

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The EU and China have announced details of a deal that will see the two work together on a series of environmental and climate change projects including the design of a Chinese carbon market.

The total European financial contribution may only be €25m over a four year period but the EU’s role in the development of a Chinese emissions trading system could bode well for the future of the bloc’s own carbon market.

European Commissioner for Development, Andris Piebalgs, and Chen Deming, Minister of Commerce of the Republic of China signing today's €25m. (Source: EU)

“Today’s agreement is an important step for an ever closer cooperation towards a robust international carbon market,” said Connie Hedegaard, European Climate Action Commissioner.

“Needless to say that it makes a significant difference when now also China wants to use carbon markets to reduce emissions cost-effectively and boost low-carbon technologies. This is a huge opportunity to modernise our economies, stimulate growth and create jobs in new dynamic industries with innovative technologies and clean energy,” she added.

The EU will also help establish pilot projects in waste, water and sustainable urbanisation to help the Chinese government to reach its targets on carbon intensity reduction.

The deal was signed by European Commissioner for Development, Andris Piebalgs, and Chen Deming, Minister of Commerce of the Republic of China.

The country’s 12^th five-year plan includes a 17% reduction in CO2 emissions per unit of GDP by 2015, compared to 2005 levels.

China is the largest overall emitter of greenhouse gas emissions largely as a result of its sheer size. Its emissions per capita rank it at 72^nd globally behind Thailand, Azerbaijan and Mexico.

The five-year plan also called for work to develop carbon trading platforms.

The country has already started developing seven regional pilot programmes and the help from the EU could signal an acceleration towards a nationwide Chinese trading platform.

Carbon markets

Collaboration with a Chinese carbon market would be a welcome boost to the EU Emissions Trading System (ETS), which saw prices drop to a record €4.99 per tonne of CO2 this April.

Any future link up between the EU and Chinese trading platforms would be made easier if the two systems had similar designs.

At the UNFCCC climate negotiations in Durban last year, China broke from its previous position and said it would consider making legally binding emissions targets through the UN, on the conditions that all countries did the same.

The shift was a major contribution to the signing of the Durban Platform, the first fragile step towards a global deal on greenhouse gas emissions.

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China’s 20 top technologies to combat climate change

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