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Despite their problems, carbon markets are here to stay, say experts
By Karen Calabria
AFP
NAIROBI
Petroleumworld.com 11 11 06
The carbon market, the jewel in the crown of the Kyoto Protocol, is a flawed gem but one likely to endure, regardless of the form that international efforts take to tackle climate change, experts here say.
Carbon trading is the centrepiece of the UN's pact on curbing the greenhouse gases that are dangerously changing the world's climate system, and an arduously-negotiated, controversial piece of treaty architecture it has proven to be.
The market takes two forms.
One is a market in emissions by rich countries, which are alloted caps for their pollution.
If they clean up their act, they can sell any surplus to partners who are above their goal, thus providing a financial incentive all round.
So far, the only major Kyoto emissions trading scheme has been launched by the European Union, gathering large EU corporate energy-users.
But, after a good start in 2005, the market suffered two horrific crashes this year after it was discovered that EU countries were in fact disgorging less pollution than initially thought.
That's a piece of good news for the environment, but bad news for trade. The emissions market became flooded with sellers, depressing the price of a tonne of carbon dioxide (CO2), the principal greenhouse gas.
Ruta Bubniene, of the green group Climate Action Network Europe, said faith remained in the market, despite its turbulence.
"This has so far been the most feasible measure of reducing emissions because it's acceptable to businesses which wouldn't otherwise agree" to a total, immediate phase-out of CO2-belching equipment, Bubniene said.
"The problem with emissions trading is that it's not the solution but merely a tool to bring about real action in an affordable and transparent way," International Emissions Trading Association (IETA) director Edwin Aalders explained.
Kyoto's other market machines are called the Clean Development Mechanism (CDM) and Joint Implementation (JI). Under it, rich countries that back clean-technology projects in developing countries (under the CDM) or in Eastern Europe (under JI) get carbon credits.
These credits can be bought and sold or set against the rich countries' own quota -- a tactic that some deride as "paying to pollute."
"Right now, European Union members are allowed to achieve 50 percent of the reductions required by the Kyoto Protocol externally," Bubniene said.
Rich countries need to limit the amount of reductions that they can outsource abroad and focus more on domestic reductions as a way to meet Kyoto's goals of the Kyoto Protocol, she said.
Kyoto, which took effect in February 2005, commits industrialized countries who ratified the treaty to bring their greenhouse gas emissions to an average of five percent below their 1990 level by 2012.
Other environmentalists echoed Bubniene's sentiments.
"This can be thought of as a 'pay to pollute' solution because it does not force a large-scale investment in energy efficient technology, (as it allows) polluters to buy what they need," Greenpeace's Steve Sawyer said.
"The system is currently very flawed but we're working on ways to clean it up by the time (the present) Kyoto (commitment period) expires in 2012," he added.
Negotiations for cuts beyond 2012 are expected to begin in earnest next year.
The United States, the world's top polluter, and Australia, leading in pollution per capita, signed up to Kyoto but have refused to ratify it. President George W. Bush says its targets are too costly for the American economy.
Even so, carbon markets are cautiously making headway in these two holdout countries, although at a regional level, and a growing number of businesses are lobbying their governments for change, angry at being locked out of the profits that can be made from the CDM and JI.
In May, the World Bank said that the global market for CO2 grew tenfold in the space of a year to reach 10 billion dollars in 2005. But it cautioned that the market was still deeply volatile.
Environmental economists remain hopeful that the carbon trading will iron out its problems and continue to grow as an effective way to mitigate climate change.
"Two years ago in London or any other major financial capital, if you mentioned emissions trading or climate change, people would have sat staring, with their mouths hanging open," IETA's Aalders said.
"But now people are putting money into this as a way to reduce emissions and investing in renewable energy," he added.
AFP 10 1351 GMT 11 06
Copyright© 2006 AFP. All Rights Reserved.
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