Bloomberg News

South Africa Says U.S. Should Adopt Carbon Budget by 2020

December 11, 2012

The U.S. should provide more detail about its probable emissions and consider installing a U.K.-like carbon budget to take advantage of global emissions markets by 2020, said a South African climate negotiator.

The U.S. should prepare to “take on a budget,” which is an emissions limit for a set period of years, starting by 2020, Alf Wills, the African nation’s chief negotiator, said Dec. 8 in an interview in Doha. In the meantime, many richer nations need to start making commitments comparable to that deal, which sets targets for 37 countries, he said.

In return, nations may then grant the U.S. and other nations without a mandatory reduction target easier access to tradable credits, including from new markets, he said. Certified Emission Reductions for this month today fell 25 percent to a record 46 euro cents ($0.60) a metric ton on the ICE Futures Europe exchange in London. The U.K. has installed a program of carbon budgets through 2050.

Todd Stern, Barack Obama’s senior climate envoy at the United Nations talks in Doha, which ended Dec. 8, declined to say how a post-2020 global climate-protection deal might look.

“The challenge of governments using policy well and using financial instruments well to leverage private capital is a huge one and one of the most important ones going forward in the next few years,” Stern said Dec. 8 in an interview in Doha as the talks were wrapping up. “We and many other countries are working on that. But in terms of what the post-2020 regime is going to look like, it’s way too early to tell.”

‘Price Crashes’

Carbon markets don’t work well at the moment because most nations including the U.S. are sitting outside them, Wills said. They need to be drawn in over the next eight years as the world negotiates carbon budgets or a Kyoto-like replacement, he said.

“The problem that you have is that when you start generating supply of credits and you don’t match that with a cognizant increase in demand through a carbon-budget approach, then the price crashes, which we have witnessed,” Wills said.

Emission Reduction Units created by nations currently taking part in the Kyoto Protocol, including Russia, Ukraine and the European Union, dropped 29 percent today to a record 25 euro cents a metric ton on ICE Futures.

“You’ve got 10 gigatons of hot air in the system. You’ve got 20 percent of the world emissions, which is the U.S., not participating in that system,” he said. “The answers are simple in theoretical terms. Political terms, not so simple.”

Emissions Growth

South Africa paid for a Green Fund which will provide 800 million rand ($92 million) from April this year through March 2014 to help move the nation’s economy to a lower-carbon foothold, according to the website of the nation’s environmental affairs department.

The pace of growth in global greenhouse-gas emissions from energy use slowed to 3 percent last year from 5 percent in 2010, according to BP Plc. (BP/) U.S. output dropped 1.8 percent to 6 billion tons of carbon dioxide, 18 percent of the global total and ranked second behind China’s 26 percent. The U.S. has a population of 320 million compared with China’s 1.4 billion.

“At this point in time the Americans don’t support a carbon-budget approach, so this is one of the major difficulties we have,” Wills said.

Obama’s re-election and what it means for global-warming policy was the biggest question at the UN talks. Ministers agreed to streamline their negotiations, focusing on the 2015 goal and reviving the push for a treaty that failed in 2009 in Copenhagen. They also renewed pollution limits under the Kyoto Protocol.

‘Carbon Budget Feasible’

“The idea of a carbon budget is feasible in the U.S. if it is linked to tax reform and is budget neutral,” Daniel Rossetto , managing director of Climate Mundial Ltd., a London-based consulting company that works in carbon markets and a former JPMorgan Chase & Co. (JPM:US) executive. “Just putting a price on carbon will be viewed as a new tax and this will not be popular.”

Like in Australia, the U.S. should use new revenues collected by government through a carbon program to fund cuts in other existing taxes on businesses and families, Rossetto said.

“Then we have an affordable and politically acceptable opportunity for the U.S.,” he said.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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