By Climatico Contributor: Sabina Manea
The outcome of the UN conference in Durban has been more positive than initially indicated by the complexity of the negotiations. It is particularly laudable that a second commitment period of the Kyoto Protocol has been secured. This result translates into a continued existence of the international emissions trading mechanism.
Despite detailed discussions on the matter, the parties have postponed reaching a firm conclusion on the continued surplus of AAUs in the market and their carry-over into the second commitment period. Although not addressed centrally at Durban, the future linkage of national and regional emissions schemes has emerged as a clear goal of parties such as the EU, Australia and New Zealand.
Carry-over of the AAU surplus
As the Kyoto Protocol is set to continue beyond its current end date of 2012 until 2017 or 2020, AAU trading remains in force as a market-based mechanism of climate change mitigation under the Protocol.
Discussions over how to address the surplus and carry-over of AAUs into a second commitment phase took place throughout the Durban conference. Responsibility for the deliberations was assigned to the AWG-KP spin-off group on numbers. Parties in the group presented a number of possible options, of which limiting the carry-over of surplus AAUs was the subject of particular focus. The final outcome of the discussions signalled a firmer resolution to select the most appropriate avenue for the treatment of the AAU surplus. The CMP instructed the AWG-KP to assess the implication of the AAU carry-over on the desired scale of emissions reductions in the second commitment phase, to be completed by AWG-KP 17.
A promising outlook for linkage between emissions trading schemes
The issue of linkage between national and regional emissions trading schemes was not addressed during the official Durban negotiations. However, encouraging signs emerged in parallel with the conference as to the willingness of countries to work together towards creating more connectivity.
Several parties have already taken the initiative and have begun negotiating to link their emissions trading schemes. Australia plans to go ahead with its trading scheme, which is due to start in 2015, and there are plans in the pipeline to link it with the EU ETS as well as with New Zealand’s mechanism.
The future of emissions trading post-Durban
It is of paramount importance that the AWG-KP follows up on the task entrusted to it by the CMP in order to reach a conclusion on the most appropriate solution to the carry-over issue. The success of the second commitment phase in combating climate change is closely connected to the treatment of the AAU surplus. If emissions trading is to remain a viable means of environmental regulation under the Protocol, it is essential to maintain the functionality of the AAU market so that it can help achieve the necessary levels of emissions reductions.
Harnessing the AAU market at the centralised, international level can be usefully supplemented by closer cooperation and linkage between national and regional emissions trading schemes. Given the continued popularity of this market-based mechanism with regulated entities, especially as exemplified by the EU ETS, emissions trading is likely to take precedence over other more prescriptive solutions (such as taxes) for the foreseeable future.