EU environment ministers abandoned plans on Friday (26 October) to limit excess supply of Kyoto-era carbon credits on the world’s markets after seven eastern European states backed Poland’s opposition to the measure.
The Environment Council had been intended to forge a common EU position on Assigned Amount Unit carbon credits (AAUs) – disparagingly dubbed ‘hot air’ credits – before the UN climate summit in Doha next month.
But “the fact that there hasn’t been agreement within the EU block will only make expectations for the Doha conference on the carry-over of AAUs very low,” said Jeff Swartz, the policy director for the International Emissions Trading Association.
“The EU will have a harder time getting other countries to support their position in Doha,” he told EURACTIV, "so the likelihood of an outcome for that agenda item would be less."
AAU credits were agreed for countries in the former Soviet bloc under the Kyoto Protocol’s Joint Implementation scheme. But a collapse of heavy industry after the Soviet Union’s implosion, reduced their value to less than a euro per tonne.
Russia and many eastern European nations want the credits to carry over into a second Kyoto commitment period after 2012, when the treaty expires.
The European Commission fears this could compromise its Emissions Trading System (ETS), and prevent meaningful international agreement at the UNFCCC Doha Climate summit next month.
A proposal put to the EU’s Climate Change Committee earlier this month called for a ban on non-EU countries’ use of Emission Reduction Unit credits – which can be turned into AAUs, and traded on the ETS.
Watered down words
But following an ambush in Luxembourg on Friday by eastern European states which possess significant AAU stocks, the wording agreed by environment ministers was heavily watered down.
It merely called for a proposal at Doha that “maintains an ambitious level of environmental integrity and preserves incentives for overachievement while encouraging the setting of ambitious targets”.
The other east European states supporting Poland's positions were: Bulgaria, the Czech Republic, Hungary, Lithuania, Latvia, Slovakia and Romania.
In a statement after the conference, Poland’s environment minister Martin Korolec said that Warsaw had successfully steered a path towards a rational and cost-effective climate policy.
“We managed to achieve two main objectives,” he said. “We adopted an open mandate for negotiations in Doha, that takes into account the Polish position and our right to preserve and dispose of the emissions under the Kyoto Protocol.”
Few credits are currently being traded, however. The value of AAUs fell to €0.88 per tonne on the ICE futures exchange last week, way below the roughly €8 per tonne price of credits on the depressed ETS.
According to Bloomberg New Energy Finance, the amount of still usable AAUs held by EU states would correspond to 63% of the EU’s aggregate emissions in 2010. If excess AAUs held by non-EU nations were added, the surplus would approximately equal Russia’s total emissions from 2008 through 2012.
Environmentalists had hoped that a legal opinion from Jean-Caude Piris, the former legal adviser to the Council of Europe would prevent Poland from exercising a veto in the debate.
Piris argued that a qualified majority vote was sufficient for decision-taking at Council. But Poland’s ability to win over other east European states rendered that opinion moot on the day.
As a result, “we’re no further forward than a year ago and time is running out,” commented Mark Johnston, a senior policy adviser for WWF.
“The first Kyoto commitment period expires in 62 days and the need for new commitments with real environmental integrity is now absolutely critical,” he added. “The council of ministers must consider using treaty rules to secure the right outcome.”