Carbon Markets To Struggle After Cancun Flop

  • Date: 13/12/10

Global carbon markets will struggle after the deal reached at annual U.N. climate talks did little to ensure mandatory emissions caps would be extended next year.

The modest deal forged after two weeks of talks in Cancun commits rich countries, from 2020, to finance $100 billion a year in climate aid for poor countries. It also sets a target to limit the rise in average world temperatures to less than 2 degrees Celsius (3.6 degrees Fahrenheit).

But it delayed the extremely difficult task of extending the 1997 Kyoto Protocol until next year’s talks in South Africa. In Cancun, Japan, Canada and Russia said they would not support a second phase of Kyoto if it did not include caps on the United States and rapidly developing countries like China.

Kyoto, which expires in 2012, obliges all developed countries — except the United States, which never ratified it — to cut emissions blamed for warming the planet or face penalties.

It was the pact’s binding emissions cuts, and expectations of tougher ones after a first phase, that gave birth to the European Union’s Emissions Trading Scheme, the world’s only carbon market that operates at national levels, as a way for businesses to meet mandatory caps.

“The outcome of Cancun does not change the fact that most of the important work of cutting emissions will be driven outside the U.N. process,” said Michael Levi of the Council on Foreign Relations in New York.

But after a bleak year, carbon markets will not do that work either.

Banks let go many emissions traders even before the U.S. climate bill failed in July. Canada’s Senate failed to pass a climate bill, Australia postponed legislation and Japan is struggling to set up a cap-and-trade market.

The Cancun agreement locked into the U.N. process a pledge last year by China to reduce its emissions intensity, or amount of carbon released for every unit of economic output. But it paved no path for the world’s largest coal producer and greenhouse gas emitter to embark on mandatory emissions targets.

Cancun also did little to cheer bankers and brokers trying to build a global carbon market who had hoped the world would now be on its way to a trillion dollars or more per year of emissions transactions.

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