Looking ahead to Doha

In just under three weeks, representatives from almost 200 countries will visit Doha for UN climate change talks. And while Australia sits on the fence regarding Kyoto 2, the moves of the world's biggest nations will be intriguing.

Climate change may have taken mostly a backseat role in this year's US presidential election compared with the 2008 round. Yet, in just under three weeks, representatives from just under 200 countries will go to Doha, Qatar, for the annual UN climate change talks. And the last few weeks have seen several countries begin to outline their negotiating positions.

On October 25, EU member states agreed the bloc's stance as one of the few developed parties willing to take on binding emission caps under a second commitment period of the Kyoto Protocol. The European Union wants 'Kyoto 2' to start from 2013 and last until 2020, compared with an end-date of 2017 advocated by some developing nations.

In South Africa last year, parties agreed a deadline of 2015 for devising a new global deal to take effect from 2020. Until then, only the EU and some smaller developed countries may have binding goals under Kyoto 2. Negotiations over a second commitment period are plagued by lingering resentments, not least that it does not cap the emissions of the world’s top three greenhouse gas emitters. The US never ratified it; China and India do not have binding targets.

The EU is in a better position to take on new targets given that it is on track to meet its current goal, according to figures released on October 24. It aims to cut emissions by 5 per cent over 2008-12 compared with 1990 levels.

This position contrasts with that of Canada, which formally withdrew from the Kyoto Protocol last December. The agreement "does not represent a way forward," said Peter Kent, the country's environment minister, at the time. Its emissions are on track to rise by 16 per cent by 2020 from 1990 levels – way off its Kyoto pledge of a 6 per cent reduction – due mainly to the expansion of its tar sands industry.

Elsewhere, Australia and New Zealand remain on the fence, and Japan is pushing for some form of involvement in KP2 without taking on a binding emission target, said Akihiro Kuroki, an adviser to the government, on October 31. How such involvement would work in practice is unclear and it may well be that Japan will be prevented from having its cake and eating it.

Like Japan, Russia has previously said it will not take part in a second commitment period. On October 18, Dmitry Medvedev, its prime minister, went a step further, saying that it could pull out of the treaty entirely. Russia had not gained much from its participation in the Protocol, he said, despite an estimated 200Mt of Emission Reduction Units issued to Russian Joint Implementation (JI) projects for the 2008-12 period.

These may simply be internal rumblings as some ministers are reportedly keen to take part in Kyoto 2 as they see the potential for economic gain. Indeed, leaving the agreement may mean that existing Russian JI projects would lose out on revenue from selling offset credits. The EU is considering imposing a ban on ERUs issued from January 1 by countries that do not take part in a Kyoto 2. Such factors could also motivate Ukraine to sign up to a second commitment period. Russia and Ukraine have been the biggest beneficiaries from the JI programme to date.

Surplus emission permits were the one area of contention among EU countries, with some eastern member states, in particular Poland, opposing any restrictions on the ‘banking’ of surplus units. EU member states will together hold an estimated 3 billion tonnes of Assigned Amount Units from the 2008-12 Kyoto period, according to Bloomberg New Energy Finance. Together with the excess rights held by non-EU nations, the surplus could amount to 11.2 billion tonnes, which could undermine any future deal on climate change. The surplus arose after central and eastern European countries were over-allocated permits due to their rapid de-industrialisation in the early 1990s.

JI is not the only programme likely to be revised in Doha: the Clean Development Mechanism (CDM) is also set for a revamp as it comes under automatic review with the end of the first Kyoto period. "Everything is on the table", said Niclas Svenningsen, manager of strategy and policy development at the UN Framework Convention on Climate Change (UNFCCC), on November 2.

Prices for credits created through CDM projects may have dropped to record low levels due to abundant supply. But the programme is "not a failure", according to Svenningsen, having generated some $US250 billion in investment. And UN climate chief, Christiana Figueres, says there is "no doubt" that it will continue. "It is a market mechanism that is very appropriate and very relevant for some countries and some sectors and they will continue to make use of that," she said on October 25 in an interview with Bloomberg BNA. Parties in Doha will also discuss ideas for new market mechanisms.

In the meantime, climate change has made a last-minute appearance in the US presidential election, after the East Coast was hit by the largest Atlantic hurricane on record. On November 1, New York City Mayor, Michael Bloomberg, who is also the founder and majority owner of Bloomberg L.P., endorsed Barack Obama for a second term, citing his “major steps to reduce carbon consumption” as a reason.

The current science on climate change and extreme weather events such as hurricanes does not appear conclusive, though the former may be making already powerful storms like Sandy even stronger. "The terrifying truth is that America faces a future full of Frankenstorms," Shaye Wolf, the climate science director from the Arizona-based Center for Biological Diversity, said on 31 October. "The threat of killer winds and crushing storm surges will grow by the year unless we get serious about tackling greenhouse-gas pollution."

This view is echoed by Mark Fischetti of Scientific American in his blog post of October 30. He said that experts increasingly agree that climate change is making storms bigger. "Climate change amps up other basic factors that contribute to big storms. For example, the oceans have warmed, providing more energy for storms. And the Earth’s atmosphere has warmed, so it retains more moisture, which is drawn into storms and is then dumped on us."

With Sandy causing 40 deaths in the US and an estimated $US50 billion of damage, it will be interesting to see what impact, if any, this event has on the US approach to climate change at this month's talks in Doha and beyond.

EU Carbon

European carbon allowances, or EUAs, advanced 2.8 per cent last week as traders awaited a proposal from the European Commission to temporarily delay supply sold at auctions. EUAs for December 2012 closed on London’s ICE Futures Europe exchange at EUR 8.11/tonne last week, compared with EUR 7.89/t at the end of the previous week. Benchmark EUAs fell to a low of EUR 7.78/t soon after the market opened last Monday. They climbed on Wednesday afternoon to EUR 8.25/t – the highest they’ve been since 19 October. The European carbon market has become more volatile in recent weeks as the Commission prepares to release its backloading proposal on November 14. The proposal will include a potential number of allowances to be held back from Phase III auctions.

United Nations Certified Emission Reductions, or CERs, recovered 14 cents on the previous week to close at EUR 1.00/t. It was the first time in five weeks CERs didn’t finish at new record lows. They were trading as high as EUR 1.19/t on Wednesday afternoon. A Bloomberg News report revealed on Wednesday that the EU Climate Change Committee will vote in December on a proposal to ban Emission Reduction Units (ERUs) issued from next year by countries that fail to adopt new emission-cutting targets. Factories and power stations participating in the EU ETS may use a certain number of CERs and ERUs for compliance.

This article was originally published by Bloomberg New Energy Finance. Republished with permission.

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