The deal to extend pollution limits under the Kyoto Protocol restricts the ability of Japan, Russia, Canada and New Zealand to take advantage of carbon market mechanisms under the United Nations treaty.
The pact endorsed today by ministers from more than 190 nations in Doha sets binding emissions caps for 37 so-called Annex B nations beginning in 2013. Those nations that renounced a second round of commitments when the first ones finish this year won’t be able to buy Certified Emissions Reductions.
The decision “will prove disappointing to market participants in those jurisdictions,” the International Emissions Trading Association said in a statement e-mailed after the decision.
CERs, also known as offsets, represent emissions reductions made by investments in clean-technology projects in developing countries. They can be used by Annex B countries that are mostly industrial nations to meet limits on their greenhouse-gas discharges.
Prices for CERs have dropped 88 percent in the past year as the economic crisis in Europe has cut industrial output, reducing in turn the demand for European Union carbon permits and UN CERs.
The second period of Kyoto restrictions, which will cover about 15 percent of global emissions, will start in January and last through 2020. It enables the EU to synchronize its cap-and- trade system with a global market that may come into effect at that time.
“Today’s agreement marks a major milestone for the UNFCCC and carbon markets worldwide,” IETA said.
Envoys also decided to ask Annex B countries with Kyoto goals to review their targets and inform the UN by the end of April 2014 about plans to step up those ambitions.
Negotiators at the talks in Doha decided to allow countries with excess emissions permits to bank these into the second Kyoto period. They also imposed a limit on the use of those permits, according to the text.
These Assigned Amount Units, handed out to nations with binding Kyoto targets, represent a cap on those countries’ emissions. Countries that exceed their pollution limits may buy AAUs from those that enact deeper emission cuts to cover discharges.
As of 2013, countries will be allowed to purchase AAUs equivalent to 2 percent of their cap for the first period. That would limit the risk of trading surplus permits, which environment lobbies including Greenpeace dubbed “hot air,” saying they threaten environmental integrity of a future climate deal by allowing countries to pollute more.
Supply of surplus AAUs comes mainly from Russia, Ukraine and eastern EU member states, where a slump in industrial output following the fall of communism led to a decline in emissions. Demand is set to shrink as the EU’s 27 nations, Australia, Japan, Liechtenstein, Monaco, Norway and Switzerland said at the meeting they won’t buy permits carried over from the first five- year period.
“While it is important that countries receive recognition for overachieving on their targets, the volume of AAUs carried over to the second commitment period could be as high as 7 billion units,” Mark Dreyfus, the head of the Australian delegation, said at the meeting. “The oversupply risks meaningful climate change efforts for 2020.”
Countries approved decisions to explore new market structures for the post-2020 treaty, which may include a sectoral trading system proposed by the EU.
“We’re delighted that markets are at the core of the Doha Climate Gateway,” Dirk Forrister, president of IETA, said in an e-mailed statement. “While we’d hoped to see more detail on the new market mechanism, the essential elements are there, and we can work with the process to complete them next year.”
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