The extension of pollution limits under the Kyoto Protocol at the UN climate talks in Doha, Qatar likely won’t help reduce a surplus of carbon offsets and emissions allowances that have dampened prices.
The agreement to extend the Kyoto Protocol to 2020 only covers about 15 percent of emissions worldwide. Countries’ lack of ambition and their failure to commit to deeper reductions means that global carbon markets will remain depressed for some time, said Stig Schjølset, head of EU Carbon Analysis, Thomson Reuters Point Carbon.
Without deeper reduction targets, investment in the Clean Development Mechanism, one of two carbon offset schemes that operate under the UN climate framework, is likely to dry up and it will be very difficult to get any of the new market mechanisms discussed at UN level off the drawing board, Schjølset said.
Under the Clean Development Mechanism, governments and companies can invest in emissions reduction projects in exchange for tradeable credits known as Certified Emission Reductions, which then can be used to meet climate targets.
In the lead up to the climate talks, carbon-trading company Orbeo predicted prices for UN emissions credits may drop to almost zero this year. As of late October, the price of CERs had dropped 85 percent in the past year because of an oversupplied market.
CER prices have since continued their decline. CERs for December fell today to a record 56 euro cents ($0.73) a metric ton on the ICE Futures Europe exchange in London, Bloomberg reported.
The European Union did reach an internal agreement on how to deal with its surplus of international allowances known as Assigned Amount Units, reported Reuters. The EU text was included in the final package of agreements known as the Doha Climate Gateway.
Under the agreement, allowances will be carried over into a second Kyoto commitment period, reported Reuters. However, allowance purchases would be limited to 2 percent of the purchaser’s national allocation.
Even that extra purchasing power is unlikely to be met. Australia, the EU, Japan, Liechtenstein, Norway and Switzerland—the only countries likely to purchase allowances — made declarations saying they would not buy them, a move that ensures they have limited market value.