Bloomberg News

Political Signal Needed on UN Carbon Market Future, Norway Says

October 27, 2011

Oct. 27 (Bloomberg) -- Climate envoys should send a “political signal” at the upcoming summit on their willingness to continue the United Nations carbon market to allay investors’ concerns about its future, Norway’s chief negotiator said.

More than 190 nations will meet in Durban, South Africa, from Nov. 28 until Dec. 9 to discuss climate-protection rules for the period after 2012, when the current emission-reduction targets for developed nations under the Kyoto Protocol expire. Systems designed under the protocol, including the UN Clean Development Mechanism, should continue, Norway’s chief climate negotiator Henrik Harboe said.

“We need to give confidence to the markets,” Harboe said in an interview in Brussels. “We need a signal that the mechanisms will continue. Maybe we’ll also have to introduce kind of flexibility or willingness to get new mechanisms or to make some adjustments.”

The UN carbon offsets program, the world’s second biggest, was started in 2005 to help developed countries meet their emission-reduction commitments under the Kyoto Protocol, while at the same time furnishing developing regions with climate- protection tools and funding. The CDM, which generates credits for investment projects that cut carbon in poor nations, shrank 46 percent to $1.5 billion last year, according to World Bank estimates.

Talks Stalled

Investors are withdrawing from the CDM as UN talks to fix post-2012 climate architecture, which involve extending the Kyoto goals for a so-called second-commitment period and creating a new globally binding treaty, have stalled amid differences between rich and developing nations.

While poorer countries have been calling on industrialized states to adopt post-2012 Kyoto targets, nations including Japan and Russia have said they don’t want to extend the treaty. Their absence, along with that of the U.S., China and India, would leave the pact without targets for the five biggest national emitters of pollution from burning fossil fuels.

“That’s one of the reasons why we see the second commitment period so important; we think that Kyoto and its mechanisms is exactly the kind of framework we want,” Harboe said. “But the CDM can continue to live also without a firm Kyoto decision.”

The European Union, which allows companies in its emissions-trading system to use a certain amount of CDM credits for compliance, has repeatedly said the UN market will survive amid demand from Europe even without immediate renewal of Kyoto goals. The 27-nation bloc has an internal target of a 20-percent reduction in greenhouse gases by 2020.

Little Incentive

Still, supply from existing CDM projects, excluding activities that the EU will ban from 2013, may be enough to satisfy demand from the region’s emitters up to 2020, offering companies little incentive to make new investments, according to Bloomberg calculations based on data by the Risoe Centre on Energy, Climate & Sustainable Development. The Roskilde, Denmark-based Risoe Centre is a unit of the UN Environment Program.

Developed countries willing to extending Kyoto carbon- reduction targets beyond their 2008-2012 commitments may decide to do so in Durban if such a move is a part of a broader package that also maps out the process toward a global agreement that will include all major emitters, Harboe said.

His comments fall in line with the position of the EU, with which Norway is closely associated. The bloc’s environment ministers declared earlier this month that Europe is open under certain conditions to adopt post-2012 goals under Kyoto. The conditions include mechanisms for ensuring that the treaty brings actual environmental benefits and a roadmap for other countries to commit to binding carbon-reduction targets.

“We hear language from South Africa and from other important developing countries that demonstrates understanding for the broader perspective,” Harboe said.

--Editors: Alessandro Vitelli, Rob Verdonck.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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