EU pushes smaller role for carbon offsetting

18 March 2008

The Kyoto Protocol on global warming allows rich countries to meet binding targets on greenhouse gas emissions by funding cuts in developing nations.

The EU has been the biggest buyer of offsets so far but now wants developing nations to take more responsibility for cutting their contribution to global warming, potentially pouring cold water on an emerging, multi-billion dollar carbon market.

The Europeans have tabled the proposals ahead of a climate meeting later this month in Bangkok , the first in a two-year process launched in Bali in December to agree a new global climate change deal to succeed the Kyoto Protocol after 2012.

"If developing countries continue to be only offset suppliers we simply will not reach (desired) emissions levels," the Commission's Head of Emissions Trading, Yvon Slingenberg, told a carbon market conference in Copenhagen .

"We need a re-think. (Emissions cuts) would become more the contributions of developing nations," she told reporters. "(We want) a gradual shift from offsetting to cap and trade."

Cap and trade schemes set a limit on greenhouse gas emissions and allow participating countries and companies to trade emissions permits within that cap.

Developing countries have consistently rejected such limits, saying that cutting poverty comes first and that countries which are already well off should pay for the climate fight.

The EU stance on Tuesday was not welcomed by the United Nations' climate change body which is leading the post-Bali talks and which wants to expand carbon offsetting under Kyoto 's Clean Development Mechanism (CDM).

"Developing countries, at the moment, would say that the CDM is the only serious money on the table, and you (the EU) are proposing to constrain it in volume," the U.N.'s climate change chief, Yvo de Boer, told reporters at the Copenhagen conference.

"The developing world is not willing to adapt to a cap and trade approach...they've been very clear on this," he added.

The EU does not want to be the only group of countries funding emissions cuts in the developing world, and is waiting for the outcome of the Bali talks before deciding its approach.

Its stance is also worrying carbon market investors, already jittery after the Commission proposed in January to freeze from 2013-20 the use of carbon offsets by energy-intensive industry.

Under the CDM western speculators hunt the most lucrative emissions-cutting projects in the developing world, generating offsets and profiting from price differences around the world.

The boutique investment bank, Climate Change Capital, for example has raised over $1 billion on the back of profits made in such markets. Founder and vice-chairman James Cameron said the carbon market could accept changes to the CDM provided they knew well in advance what they were and when they would happen.

"There's a desperate need to know when that transition happens," he said on Tuesday.

The CDM market trebled in value in 2007 to 12 billion euros ($18.57 billion), researchers Point Carbon said on Tuesday.

The market could still have a role in a new climate deal, for example if developing nations sold offsets in return for extra effort made over and above the adoption of best practice clean energy technologies, said Slingenberg.

"Quality is important for us. You can say we'll have a higher baseline," she said.

Source: uk.reuters.com

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