Kyoto’s first commitment period oversupplied by 13 billion tonnes of CO2
London (13 September 2012)
The first Kyoto commitment period (2008-2012), is oversupplied by some 13 billion tonnes (13.1 Gt) of CO2, according to recent analysis by Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets. This figure is over three magnitudes higher than the estimated demand of 11.5 million tonnes (Mt).
Moreover, according to Thomson Reuters Point Carbon’s estimates, if a second commitment period (2013-1020) is agreed with the current proposed set of targets, then a new surplus of Assigned Amount Units (AAUs), the tradable instrument in the Kyoto market, will be created. The new surplus could reach 3.6 Gt CO2. In other words, the caps being proposed by governments are higher than the expected business-as-usual emissions for the period. Since current rules allow for the full carry-over of AAUs, the surplus in the 2013-2020 period would therefore include the spare AAUs inherited from the first commitment period, increasing the total surplus to 16.2 Gt CO2. If Australia and New Zealand do not join the second commitment period then the surplus could be as high as 4.1 Gt CO2, or 17.2 Gt CO2 including the carry-over from the first commitment period.
“The current surplus is due in part to a lack of political ambition, undermined further by economic recession”, said Andreas Arvanitakis, Director, Advisory Services, Thomson Reuters Point Carbon and co-author of the analysis. He added that the issue of surplus AAUs and the second commitment period will be discussed at UNFCCC’s Climate Change Conference taking place in November in Doha.
According to Arvanitakis, “the effect of the 2020 targets that have been pledged by different countries is that the market will still be oversupplied”. He believes that “unless the level of the 2020 targets for the second commitment period is changed, the market will remain oversupplied even if no AAUs from the first commitment period are carried over to the second.”
Under current rules, those countries participating in the Kyoto Protocol’s second commitment period with an emissions reduction target can carry over their surplus AAUs from the first period.
Arvanitakis explains that even in the event that a mid-point of the EU target emissions range, namely a 25% reduction on 1990 emissions levels by 2020, were agreed, the market would still be in surplus in the second commitment period by 0.8 MGt CO2. This is before the surplus from the first commitment period is added.
Only taking the high end of the range of pledges made at the Copenhagen summit, namely a 30% reduction on 1990 levels by 2020 for the EU and a 25% reduction for Australia and a 20% reduction for New Zealand on 2000 levels, does the balance in the second commitment period shift to a net shortfall of 2 Gt CO2. “However, again, all this does is to dent the 13-billion-tonne surplus from the first commitment period”, Arvanitakis said.
“Because the first commitment period is oversupplied already, the effect of these surplus AAUs on the wider carbon market in the short term is minimal”, said Olga Gassan-zade, Associate Director, Advisory Services, Thomson Reuters Point Carbon, who also co-authored the analysis. However, in the longer term the preservation of the AAU surplus might have considerable implications. “The presence of such large volumes of surplus AAUs in the Kyoto system raises legitimate questions about the current system design which should not be ignored as the future of the Kyoto Protocol is negotiated. Should the surplus of the first two commitment periods pass into the post-2020 system, then the prospect of an oversupplied market never recedes. The long-term targets should reflect that surplus or risk having their environmental integrity undermined”, she concludes.
Note to editors
• Assigned Amount Units (AAUs) are emission rights that were introduced under the Kyoto Protocol. One AAU allows a country to emit one metric tonne of CO2 equivalent. For the first Kyoto commitment period (2008-2012), each country with an emissions reduction commitment (Annex B) received AAUs that were equivalent to the number of tonnes it was allowed to emit during the Kyoto Protocol’s first 5-year commitment period.
• The Kyoto Protocol (Art. 17) allows Parties to trade AAUs. Countries whose emissions are above their Kyoto target can purchase AAUs from countries which have a surplus to help them meet their reduction obligations.
• We estimated the AAU gap or surplus of each Party in the first Kyoto commitment period using the publicly-available reduction commitments as well as historical and forecasted input data. They include emissions, AAU transactions between parties, and purchases of CDM and JI offset credits. As the public knowledge on AAU and offset credit purchases is often opaque due to the confidential nature of these transactions, there is a degree of uncertainty associated with the data.
• This analysis is drawn from a report authored by Thomson Reuters Point Carbon. The report was commissioned by CDM Watch. The analysis was conducted on an independent basis and represents the opinion and views of Thomson Reuters Point Carbon.
• The Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in February 2005, resulted in the launch of the EU’s Emissions Trading Scheme (ETS). The EU ETS is the world’s first international greenhouse gas emissions trading scheme. It works on a cap - and - trade basis, where the total allocation is set at the start of a trading period. EU Allowances (EUAs) are the tradable units under the EU ETS.
• The second phase of the EU ETS runs from 2008-12 and the third phase will run from 2013-20 when the fourth phase begins.
• The 18th session of the Conference of the Parties to the UNFCCC and the 8th session of the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol will take place from Monday, 26 November to Friday, 7 December 2012 at the Qatar National Convention Centre in Doha, Qatar.
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