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Trading Carbon : November 2011
No-one working in carbon markets needs reminding that the first Kyoto Protocol commitment period closes at the end of next year. And, with little sign of a new global climate change regime or a second set of Kyoto obligations being agreed any time soon, many practitioners already acknowledge that at the international level there will be a "gap" period of several years after 2012. The so-called Kyoto gap casts uncertainty over the future of UN offset programmes, such as the Clean Development Mechanism (CDM) and Joint Implementation (JI). Both schemes were established as flexible market mechanisms to help countries and companies meet legally-binding GHG targets set by the Protocol. At October's UN talks in Panama, many developing countries argued that if industrialised countries would not take on compulsory post-2012 carbon caps under a second Kyoto period, there should be no continuation of the CDM. The debate is set to continue at the high-level UN disc ussions in Durban, South Africa in November and December, but only the EU has given any indication that it could sign up to a second commitment period (see pages 20--21). Agreements made by UN Framework Convention on Climate Change (UNFCCC) parties at the high-level climate talks in Cancun last December mean the potential use of new market mechanisms to reduce GHG emissions is also scheduled to be addressed in Durban. The depth of these consultations or whether, in fact, they will take place at all this year is still to be decided. One country that would like to see progress made on new market approaches is Japan. The East Asian country is keen to promote its idea for a so-called bilateral offset crediting mechanism (see box, page 14). Ultimately, it would like to see the proposal adopted by parties at the UNFCCC, as part of a successor regime to Kyoto. "We expect that a decision at the UNFCCC level will allow us to implement bilateral offset credit mechanisms," said Yuji Mizuno, senior planning officer in the office of market mechanisms at the climate change policy division of the Ministry of Environment (MoE) in Japan. "The Cancun agreement includes consideration of new market mechanisms, which opens the way to a bilateral offset crediting mechanism," said Akihiro Sawa, senior executive fellow at think tank the 21st Century Public Policy Institute in Tokyo. The MoE and the Ministry of Economy, Trade and Industry are backing feasibility studies into several potential bilateral projects. As Trading Carbon went to press in mid- October, a total of 90 studies had been given the go-ahead by the ministries, with more expected soon (see box). The government of Japan made a submission to the UNFCCC Secretariat in February regarding new market mechanisms. In it, the country welcomed the decision made in Cancun to consider such schemes in Durban. The submission did not make explicit reference to bilateral offset crediting, but some of the comments on new market mechanisms clearly had the proposal in mind. For example, it said that new mechanisms should be technology neutral. "In order to achieve significant GHG emission reductions on a global level, it is essential to mobilise all available technologies. In this context, new market 13 COVER STORY mechanisms should not preclude any technologies, such as nuclear power and CCS (carbon capture and storage)," the submission said. CDM excludes such project types. It also noted that new programmes should be flexible. To this end, "new market mechanisms should be built in a way that individual countries are allowed to design, establish and implement their market mechanisms, reflecting their own national circumstances." The submission also called for decentralised governance str uctures for such mechanisms, as well as centralised schemes, such as the CDM. Much of Japanese industry is also supportive of a bilateral offset mechanism being accepted as a new market-based instr ument under the UNFCCC. For example, the Federation of Electric Power Companies (FEPC), which represents Japan's power generators, urged the UNFCCC in a Febr uary submission to recognise "various mechanisms, particularly project-based bilateral offset mechanisms". "We think that in order to reduce GHGs globally, it is important to implement bilateral cooperation activities appropriate for the circumstances of each host country," said Maeda Ichiro, general manager international affairs and environment at FEPC. "Bilateral offset mechanisms can contribute to the reduction of global GHG emissions by means of dissemination of low-carbon technologies, products and services," he said. There is also support from some potential project host countries (see table 2). "There is an increasing expectation from some developing countries in South-east Asia that this new mechanism would help their low-carbonised sustainable economic growth (given) the UN deadlock," said 21st Century Public Policy's Sawa. For example, on September 8, Point Carbon News DAVID LYTTLETON November 2011 Table 1: Project types under consideration for bilateral offset crediting mechanism (October 9, 2011) Project types Number of project feasibility studies Energy effciency 40 Ultra-supercritical coal 5 Renewable energy 14 REDD+ 11 Transport 5 Coal-mine methane 2 Waste management 3 Other* 10 *Other includes: nuclear, carbon capture and storage, smart grid, combined cycle natural gas and natural gas recovery and utilisation, among others Source: METI, Ministry of Environment Japan and New Energy and Industrial Technology Development Organization New mechanisms should not preclude any technologies, such as nuclear and CCS Government of Japan submission to the UNFCCC
December - January 2011