Bloomberg News

EU Agrees Rules on Emission Permits as UN Envoys Eye Kyoto Deal

December 07, 2012

European Union governments agreed to seek full banking of unused United Nations emission rights for after 2012 and a limit on their sale in a bid to facilitate a global deal on extending the Kyoto Protocol.

The 27-nation bloc is pushing for acceptance of its position at the UN climate summit in Doha, where negotiators from more than 190 countries are due to conclude two weeks of talks today. Their aims include adopting a second commitment period of the Kyoto treaty, whose greenhouse-gas reduction targets for industrialized nations expire this year.

The internal EU agreement was accompanied by declarations from the bloc’s member states and five other nations that they won’t buy surplus permits from the current five-year phase, known as the first commitment period, according to an EU official. That would limit the risk of trading excess Amount Assigned Units, which environment lobbies including Greenpeace dubbed “hot air.”

“Europe has accommodated the wishes of the least ambitious European governments,” Greenpeace’s Aida Vila Rovira said in Doha. “European negotiators will have a tough job explaining the position to the developing countries, which are asking for a more robust solution tackling the Kyoto surplus problem.”

The AAUs, handed out to 38 developed nations under the 1997 Kyoto Protocol, represent a cap on those countries’ emissions in the five years through 2012, known as the first Kyoto commitment period. Countries that exceed their pollution limits may buy AAUs from those that enact deeper emission cuts to cover discharges.

The EU position allows selling unused AAUs while limiting purchases to 2.5 percent. Unused greenhouse-gas emission permits from the first period won’t have buyers in the second phase, officials from the European Union and the United Nations said earlier this week.

Supply of surplus AAUs comes mainly from Russia, Ukraine and eastern EU member states, where economic transformation and a slump in industrial output following the fall of communism led to a decline in emissions. The biggest source of demand is set to dry up as Japan said it is not planning to adopt a new target under the Kyoto treaty from 2013. New Zealand, which had an emissions target under the protocol in the first period, also said it won’t extend it.

Those two countries along with the EU’s 27 member states, Australia, Switzerland and Norway declared they won’t buy surplus AAUs, said the EU official, who asked not to be named, citing policy.

The issue of whether to cancel or transfer AAUs after 2020, when the EU wants the second Kyoto period to end, was left unresolved, according to the official. It is set to return to the spotlight within the next three years as climate envoys will need to decide how to handle unused permits in a new global deal they want to iron out by 2015.

Should the unused AAUs from all countries with targets under the first Kyoto period be allowed for use in a post-2020 regime without any restrictions, the surplus could risk inflating new caps by as much as 16.6 billion metric tons of carbon-dioxide equivalent, according to Bloomberg New Energy Finance estimates. That’s approximately equal to the total emissions from Russia, Australia and Japan from 2008 through 2012, according to BNEF.

Russia may have 8.9 billion tons of surplus AAUs, the most among countries with binding targets for the first commitment period, according to BNEF.Ukraine ranks second with a surplus of 2.8 billion AAUs and Poland third with 0.9 billion by the end of this year. The deadline for compliance for the first Kyoto period expires in 2015.

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

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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