The EU had little choice in proposing not to outsource more of its emission cuts abroad to meet a proposed 40% reduction in greenhouse gas output by 2030 because the slow pace of global talks to develop new carbon markets gave it nothing to buy, a senior EU official said.
The European Commission in January proposed meeting the target entirely from CO2 cuts made within Europe, unless a global climate change agreement required it to deepen the goal.
Jürgen Lefevere, a senior official at the Commission, the EU's executive, insisted that the bloc was willing to open up its carbon market but was restricted by a lack of reform at international level.
"All of the work on this has moved tremendously slowly or not at all," he said on the sidelines of the latest round of UN climate negotiations in Bonn, Germany. "That provides us with a challenge where there is no definite framework out there. How can we expect to buy international credits from something we haven't seen defined?"
International talks on how to set up new markets and links via common accounting standards have been shelved until June after breaking down last year. Poor nations refused to allow progress without guarantees that richer countries would increase efforts to cut their own emissions.
The lack of an explicit signal that the EU would welcome international carbon credits dismayed carbon market proponents. “It's the big missing link in the EU proposal. There is still a need for the EU to be a leader and to promote a vision of global cooperation,” said Dirk Forrister, president and CEO of the International Emissions Trading Association.
The EU had hoped that progress on devising new carbon markets would be one of the early agreements towards signing a new global climate deal in Paris in 2015, which would enter into force from 2020.
But some developing countries have shown no sign of budging in their stance to block progress without commitments from rich nations to help them adapt to the effects of climate change.
"Developing countries need predictable, stable and adequate sources of finance to tackle climate change – a total contrast with our experience with markets so far," Naderev Sano, a negotiator from the Philippines, said on Wednesday (12 March) in Bonn.
UN carbon markets
The Clean Development Mechanism, the UN’s main carbon market has helped channel more than $315 billion to poor nations over the past 10 years, in the form of carbon credits.
Europe and Japan have bought the lion's share of the 2.2 billion UN-backed carbon credits issued to date, with EU firms allowed to use 1.6 billion units to meet their obligations to 2020 under the bloc's Emissions Trading System (ETS).
But the EU has approved no additional credits for use since 2008. It has also banned several types of unit amid concerns about their environmental integrity and to encourage emerging economies to pay for more of their own emission cuts.
With few other sources of demand, the supply of credits ballooned and hammered prices to a record low of 0.14 euro ($0.19) per ton of emissions on Tuesday from over 20 euros five years ago, slashing investment in new schemes.
The EU has extended technical support to wealthier economies such as China, Mexico and South Korea to help them set up their own carbon markets. But efforts to link the ETS directly with more advanced schemes in Australia and Switzerland have been put on hold, due to political opposition in those nations.
With a turnover that reached around €90 billion in 2010, the EU's Emissions Trading System is the world's largest carbon market. Around 80% of it is traded in futures markets and 20% in spot markets.
The ETS aims to encourage companies to invest in low-polluting technologies by allocating or selling them allowances to cover their annual emissions. The most efficient companies can then sell unused allowances or bank them.
The scheme has proved influential. Although Australia has abandoned plans to begin carbon trading in 2015, Thailand and Vietnam have both unveiled plans to launch ETS’s, China is due to launch pilot schemes across several provinces this year, and India will ring the bell for trading on an energy efficiency market in 2014. Mexico and Taiwan are also planning to introduce carbon markets.
- 2014: India due to begin energy efficiency trading
- October 2014: Thailand due to launch a voluntary emissions market
- 2015: South Korea due to begin emissions trading
- 2020: Phase IV of ETS due to begin
- DG Climate: Structural Reform of the ETS
- DG Climate: Carbon market reform press release
- DG Climate: Q&A - Emissions Trading
- DG Climate: EU ETS
- DG Climate Action: ETS Legislation
- Bloomberg New Energy Finance: BNEF
- Thomson Reuters: Point Carbon
- International Emissions Trading Association: IETA
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