EU maintains low-key approach to carbon market expansion

Published 09:57 on February 25, 2015  /  Last updated at 12:17 on May 12, 2016  /  Climate Talks, EMEA, EU ETS, International, Kyoto Mechanisms, New Market Mechanisms  /  No Comments

The EU wants a new global climate deal to encourage international carbon trading but maintained on Wednesday it has no plans to use foreign carbon credits in its own contribution to the pact.

The EU wants a new global climate deal to encourage international carbon trading but maintained on Wednesday it has no plans to use foreign carbon credits in its own contribution to the pact.

The European Commission’s blueprint for a Paris deal gave the clearest sign yet of how the bloc wants carbon markets to help tackle climate change beyond 2020.

But the executive proposed that Europe’s INDC for an emission reduction of at least 40% by 2030 will feature “no contribution from international credits” and relegated any mention of markets to an annex published alongside the main 16-page document.

“While domestic carbon markets remain the domain of sovereign parties, the Protocol should encourage carbon pricing, and facilitate and recognise international links between carbon markets, which can broaden their reach and enhance their effectiveness,” it said.

It said this should be done by:

  • Enabling emission reductions in one country to be claimed in another via robust accounting rules.
  • Providing market mechanism(s) for the certification of emission reductions for use towards commitments for countries that choose to make use of them.

It said agreement on the basic details of these could be made either during the December Paris meeting or in later annual UN climate conferences.

UN climate talks generally require the consensus of all nations to reach agreement and progress on markets has been limited in recent years as some Latin American countries doubt they lead to effective emission cuts and sustainable development in the developing world.

ACCOUNTING RISKS

The EU warned that there were risks involved in using cross-border markets.

“The potential to claim effort across boundaries in respect of multiple commitments could undermine integrity of commitments, with significant risk of double counting,” it said.

The EU paper said their use should be restricted to countries that take on emission-curbing goals, maintain robust emission auditing and submit additional information to an international body to enable transparent accounting of the transfers.

It didn’t rule out the participation of countries without absolute emission caps, but said accounting procedures would be more complex for those nations.

It also said countries without targets could participate by having their efforts certified via a mechanism that would use “appropriately tailored baselines”.

BUSINESS DISAPPOINTMENT

Business association IETA welcomed the EU’s recognition of the role for markets but said the bloc needed to do more to ensure markets would play a role in the post-2020 climate regime.

“The EU has got the ball rolling, but we are disappointed that the roadmap is absent any specific provisions for markets and lacks the vision for a long-term deal. With 40% of the world’s GDP now subject to an emissions trading system, following in the EU’s footsteps, the Paris agreement needs to ensure that these efforts are recognised and counted – particularly since the EU ETS is the region’s flagship climate policy,” said IETA President and CEO Dirk Forrister in a statement.

“The EU has long taken a leadership role in the international process and has been an active participant in discussions about market matters – a role which IETA hopes it is not stepping away from.”

DEMAND ROLE

In a separate paper, IETA said the EU must not rule out using more international carbon credits to encourage other nations to cut emissions and ease compliance costs for domestic businesses.

“Cutting off market access to systems outside the EU removes a source of lower-cost abatement options and would likely raise compliance costs for European industry and governments,” the business association said in a position paper.

Last October, EU leaders agreed a binding target “of an at least 40% domestic reduction in greenhouse gas emissions by 2030 compared to 1990”, apparently ruling out further use of international credits unless a deeper goal is set.

The EU has bought the majority of UN-backed carbon credits to date, with most being used by companies to help meet ETS caps, but since 2012 began to restrict access to new projects from only the poorest nations in a bid to encourage emerging economies to pay for more of their own emission cuts.

Appetite among EU policymakers for allowing more international offsets has faded as environmental campaigners have questioned the environmental and sustainable development benefits of UN credits, and the market’s massive surplus of carbon units under current rules.

TACKLE SURPLUS FIRST

IETA said it did not expect the EU to allow more foreign credit use before the current EU ETS oversupply was addressed but hoped that the mechanism would allow for such linkages in the longer term.

“At present, we recognise that it is difficult to square the near-term need for market stabilisation with the long-term need for market linkages. IETA supports reforms of the ETS, but we also envision a future where the EU will benefit from linkages to international carbon markets and high quality offsets,” it said.

It said prohibiting the use of international credits in the EU ETS beyond 2020 would restrict potentially cheaper compliance options for European companies, reduce the bloc’s contribution to sustainable development in poorer nations and encourage other countries to adopt carbon markets that could link to the EU scheme.

LINKING PROVISION

IETA pointed out that all other existing or planned markets worldwide have some provision for offset use and said the EU’s earlier willingness to open up its market had been proven to encourage nations to act.

“Europe’s use of flexibility mechanisms such as the CDM was extremely successful in encouraging interest in carbon market solutions around the world,” IETA said, referring to efforts by major CDM host nations such as China, South Korea, Chile, Mexico and Brazil to develop their own carbon market mechanisms.

It said if the EU reconsidered its use of international credits this could boost the bloc’s influence in securing robust standards for environmental integrity under the climate deal due to be signed in Paris.

IETA said this reconsideration should come with:

  • Clear rules on acceptable offset quality, agreed at UN level
  • Percentage limits on the number that can be used to ensure scarcity to ensure the EUA price drives abatement in the sectors covered by the EU ETS

The IETA paper is published ahead of a March 16 deadline to submit views to a European Commission consultation, the executive’s first step in preparing a legislative proposal on 2030 climate and energy targets agreed by EU leaders last October.

By Ben Garside – ben@carbon-pulse.com