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Second, the global distribution of offset projects under the CDM is highly skewed towards more industrialised developing countries. As of October , 45 per cent of projects generating 57 per cent of credits were in China, compared to 0. The imbalances are mainly explained by economies of scale favouring large industries and power stations and the fact that poorer countries already tend to have low emissions levels, and are a problem inherent to leaving the market to decide the priorities and direction of climate financing.

The record of the CDM in terms of its effect on greenhouse gas emissions is similarly woeful. Offsetting via the CDM was designed to offer industrialised countries and companies based in them greater flexibility in meeting their new commitments, while theoretically keeping the same net benefit. As should be clear from this description, the system of offsetting does not actually reduce emissions, but merely moves reductions to where it is cheapest to make them, which normally means a shift from Northern to Southern countries.

But even the accounting firms, financial analysts, brokers and carbon consultants involved in devising these projects often admit privately that no ways exist to demonstrate that it is carbon finance that makes the project possible Lohmann, Since carbon offsets replace a requirement to verify emissions reductions in one location with a set of stories about what would have happened in an imagined future elsewhere, the net result tends to be an increase in greenhouse gas emissions.

It has been shown, for example, that projects claiming to destroy refrigerant gases HFC have actually encouraged more of these gases to be produced, only to then destroy them again and accrue the profit from the surplus credits Schneider, The CDM has also been accused of locking in fossil fuel dependency, with a large and growing number of offset credits being granted for building coal-fired power stations on the grounds that these would pollute at a slightly slower rate than those they are replacing.

Coal mines, oil fields and refineries, Liquified Natural Gas LNG production and gas power stations are also major beneficiaries of a scheme that locks in fossil-fuel dependency. The failings of the CDM are now widely acknowledged, but there was little formal recognition of this fact in Durban. But the composition of the panel is heavily stacked in favour of supporters of the scheme UNFCCC, c , while the agreements taken in Durban further entrench the carbon market system that Kyoto unleashed.

At the core of the Durban debate lay a struggle about power and equity: who should take on responsibility for reducing greenhouse gas emissions and can states be held to account if they backtrack on their commitments? These were far from abstract considerations: the USA wrote carbon markets into the Kyoto Protocol but then famously failed to ratify that treaty Gilbertson and Reyes, In Durban, it was followed down this path by Canada, which was certain to miss its Kyoto targets and formally withdrew from the treaty following COP17, as well as Japan and Russia, which have clearly stated that they will not lodge new commitments under the Protocol after its first commitment period ends in UNFCCC, a: 6.

Although Kyoto did not die in Durban, an agreement was made that reduces the Protocol to a zombie-like state. The current industrialised country reduction targets expire in , with no guarantee that new targets will be legally adopted at the subsequent COP in Qatar Horner, At the same time, the Durban deal drove more nails into the coffin of binding emissions targets. New Zealand and Australia have attached significant conditions to their adopting new reduction commitments and were at the forefront of pushing new loopholes on how land-use, land-use change and forestry LULUCF are accounted for.

The scale of these loopholes is such that they could negate all current industrialised country pledges and allow them to continue with business-as-usual Kollmuss, Indeed, a project in Abu Dhabi that could be the first to seek CDM registration would operate in precisely this way Point Carbon, a.

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Other studies have suggested that CCS could amount to between four and 19 per cent of the supply of CDM offset credits by , which would still exacerbate the oversupply problem Bakker et al. Although these were not established in Durban, the deal paved a legal path for two parallel developments. The European Commission is the main proponent of this new mechanism. The new mechanism under the Convention is most likely to take the form of sectoral crediting, sectoral trading, NAMA crediting or some combination of all three.

Sectoral crediting is similar to the CDM, but applied to whole economic sectors rather than on a project-by-project basis. It is likely to involve a country-level target, in relation to which installations eg. These targets are mandatory. If an installation misses its target, it would have to purchase extra permits from other companies within the scheme or from abroad. Although the precise list of sectors is not yet fixed, scoping studies by inter-governmental agencies eg. Such mechanisms may also include economic sub-sectors, such as public transport. The EU has been the leading proponent of sectoral crediting and sectoral trading.

Emissions Trading Scheme (ETS) For Dummies

This would push an additional burden of responsibility onto developing countries, however. At the same time, the overall scale of offsetting would increase, since the new mechanisms would apply more broadly. It would cover some or all elements coved by a developing country NAMA, although it may use standardised assumptions to approximate the impact of particular policies, rather than attempting to measure emissions on a sectoral basis.

South Korea has been the leading proponent of this approach. In parallel to the development of a new mechanism, a work programme was agreed in Durban to discuss the means by which bilateral or unilateral market mechanisms could be counted towards emissions reduction targets under a new post climate regime. Its initial projects are expected to include coal and nuclear power plants in Indonesia and Vietnam and a carbon capture and storage project in Indonesia — at odds with the CDM, which currently excludes both. Japan has already conducted feasibility studies for bilateral crediting in Thailand, Laos and Indonesia and it launched a tender process for bilateral offset projects in April De Septibus and Tuerk, A proposed carbon trading scheme in California, USA, would also accept bilaterally defined credits.

The common denominator of all of the carbon market measures announced at Durban was the continued expansion of trading mechanisms — an apparently surprising move in the context of a collapsing market.

Making Carbon Markets Work (extended version) - Scientific American

This is undoubtedly the case, although not necessarily for the reasons put forward by proponents of expanding carbon markets. Electricity generation alone has seen an 8 percent annual increase in CO 2 emissions. Fundamental questions of equity are overlooked here. While the rise in emissions in developing countries is noted as a potentially alarming trend by the IEA, the historical and present emissions of industrialised countries are not addressed. In detaching emissions trajectories from a broader view of global emissions, the implication is clearly made that climate mitigation actions should be targeted on developing countries.

This fails to deal with the underlying structural factors contributing to an increase in emissions in these countries — which include export-led development models that have seen a significant proportion of emissions rise as a reflection of outsourced emissions from Annex I countries Peters et al.

A Handbook of Emissions Reduction Mechanisms

The distribution of responsibility for climate action is directly tied to the context in which new market mechanisms are being proposed. Scaled up carbon markets are also proposed with the aim of pushing an increasing proportion of climate financing through the carbon market.

In the current context of collapsing carbon prices, however, it is hard to avoid the conclusion that expanding the market — including through the creation of new market mechanisms — would simply exacerbate the problem of an overproduction of emissions allowances. As the IEA pointed out in January ,. Current estimates show that the supply of credits through scaled-up market mechanisms could be significantly larger than demand Some observers point to the risk of market flooding, resulting in lower carbon prices and slower mitigation efforts in Annex I countries.

Aasrud et al. These risks continue to increase. In the immediate aftermath of the Copenhagen conference COP15 , Bloomberg New Energy Finance, a major carbon market consultancy, estimated that demand for international offsets would reach 4, MtCO 2 over the eight-year period from to , equivalent to an average of MtCO 2 per year Turner, Fast forward eighteen months and the estimated demand for carbon credits has fallen even further. By comparison, the World Bank estimates that 2, MtCO 2 offsets will be generated, with 50 to 70 percent of these coming from CDM projects registered before World Bank, The reduction in the projected supply of credits factors in the impact of new restrictions imposed by the EU in the third phase of its ETS, which begins in It will also disallow the use of credits from hydrofluorocarbon HFC and nitrous oxide N 2 O industrial gas projects, which account for 67 per cent of the total issued to date World Bank, For the 55 percent of its total emissions produced by the building, transportation and other dispersed sectors that are difficult to monitor, the E.

These rules include, for instance, voluntary soon to be binding automotive fuel economy targets that were negotiated with the car makers.

Climate change and carbon markets : a handbook of emission reduction mechanisms

By next year, new vehicles sold in Europe are to achieve, on average, at least 41 miles a gallon for gasoline-fueled autos and at least 44 miles a gallon for diesel cars. Automobiles in the U. Actual U. The remaining E. For these business segments, E. Under this arrangement, every E. The companies then decide individually whether it is cheaper to reduce emissions, which would free up extra permits for sale, or buy permits from others on the open market.

If emission cuts prove costly, demand for permits will rise and so will their prices. Alternatively, prices fall if low-cost technologies for lessening carbon dioxide release appear, or slow economic growth weakens the industries that emit CO 2. By limiting the total number of permits, E. Start-up Difficulties Several teething problems have emerged in the short history of the E. Countries have struggled when handing out the property to be traded—the critical starting point for any market. Many of the allocation plans that each government devises have arrived late and have been incomplete.

In some cases they were laden with politically inspired manipulations designed to benefit favored firms or business sectors.


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Some governments are also pumping the market with cheap credits from the clean development mechanism, which lowers prices and therefore makes it easier for industry to comply with restrictions. The E. The loss in value resulted when it became clear that governments massively oversupplied the market with permits, much as poorly managed central banks cause inflation by printing excess money. Most controversial has been the distribution of permits to industry. The German government, for example, was keen to protect its coal industry.

Similar malfeasance has occurred in other countries, including the Netherlands, Spain and the U.

In principle, the E. In practice, however, member states hold most of the political cards and are not hesitant to deal them as they deem fit. Property From Thin Air The establishment of a carbon market, like any market that involves awarding novel property rights, hinges on political choices. Some economists rightly think that a better approach would simply tax CO 2 emitters, thereby avoiding the politically charged and corruption-prone process of allocating valuable property rights while also making transparent the costs of compliance.

The tax approach, however, has been criticized by many environmentalists and most of the established industry. Environmentalists complain that tax systems by design make it difficult to predict the actual reduction in emissions. In practice, though, regulators can adjust tax levies as needed. More puzzling is opposition from industry. In theory, the chief benefit of taxation derives from the resulting certainty in the cost of emissions, a fact that makes it much easier to plan investments in power plants, and other large and long-lived infrastructure projects.

Carbon markets after Durban

Although the logic of investment favors taxation, interested industries typically press for trading markets rather than taxes. They do so because they know that politicians tend to give away the emission credits for free to existing emitters, which constitutes huge windfalls that benefit the politically well-organized establishment. In the E. At a summer hearing of the U. Senate to discuss the design of a potential emissions trading system, several American utilities urged that auctions, if used at all, should be limited to just five to 15 percent of total permits.