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Trading Carbon : November 2011
20 INTERNATIONAL NEGOTIATIONS The future of the world's biggest offset market will be decided in Durban in November and December. The $20-billion Clean Development Mechanism (CDM) will either be guaranteed by an EU commitment to a second Kyoto Protocol target, or left at the mercy of tough negotiations over the status of the 1997 treaty. After week-long UN climate talks in Panama on October 1--7, the future of the CDM remains shackled to whether countries take on legally-binding caps to cut emissions under Kyoto, a treaty whose future hinges also on the outcome of the crunch talks in South Africa. If the EU signs up to a second Kyoto cap -- from 2013 -- it will likely guarantee both the future of the CDM and demand for credits from European nations. Such a decision would also ease the concerns for banks and investors that have hundreds of millions of dollars tied up in emission reduction projects in poor countries. But it is unclear what happens to credits from the CDM, which is one of Kyoto's so-called flexible mechanisms, should no country sign on to a second period under the Protocol. "The fact is that the CDM continues, unless parties decide they want to stop it. The CDM does not have a sunset clause," said Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change, on the sidelines of the discussions in Panama. "But the legal nature of those units is something the parties are going to have to decide in Durban and it will be part of the package," she said. The CDM issue is particularly salient for the EU and Japan. They have encouraged the private sector to invest in the mechanism and surrender the resulting carbon credits to help meet emission caps in the first Kyoto period (2008--2012). They are also the two developed countries most in favour of the continuation of the mechanism and rely on some form of offsets to make their 2020 emission goals cheaper to meet. But opinions over the future of the offset mechanism remain far apart. The formation in Panama of a new negotiating group representing more than half of all UN parties means the talks will be tougher. The Africa Group, the Least Developed Country Group and the ALBA Group joined forces on the last day of the meeting to demand that access to the CDM be limited to countries that sign up to Kyoto caps, a position also supported by China and India. "If you don't like the mango, you cannot like the mango tree," said Tosi Mpanu Mpanu, the head delegate of the African negotiating group, who was speaking on behalf of the new negotiating bloc. No country that pledged to cut emissions at the UN summit in Denmark in 2009 and Mexico in 2010 has, so far, put their targets forward under a legally-binding treaty. The group says the CDM was designed to help countries cut emissions and without fresh post-2012 targets under the Kyoto Protocol it will die, a position that the EU rejects. "Some parties say (the CDM) should discontinue, and others say there must be a decision saying it can continue," said Artur Runge Metzger, a senior negotiator at the EU. "If there is no decision taken on either of the two options, and decisions have to be taken by consensus, then for us it will continue, and, for us, that is the basis in Europe we have built our legislation." But this, so far, has done little to reassure investors, and investment in the CDM fell to $1.5 billion in 2010, less than a fifth of 2008 levels. Meanwhile, the future of Kyoto is highly uncertain. Canada, Japan and Russia have refused to sign up to a second cap under the treaty as it does not apply globally. The EU is waiting to see what other big emitters, such as China, India and the US, will commit to before signing up. The EU wants those countries, possibly in another agreement, to at least commit to legal targets in the future to ensure a fair playing field for heavy emitting industry. But it mango? Like the THE FUTURE OF THE CLEAN DEVELOPMENT MECHANISM HINGES ON THE DURBAN UN TALKS. ANDREW ALLAN AND VALERIE VOLCOVICI REPORT November 2011 www.pointcarbon.com "If you don't like the mango, you cannot like the mango tree" Tosi Mpanu Mpanu, head of African negotiating group
December - January 2011