Hot air: toxic for the Kyoto Protocol (Newsletter #20)

A gigantic 13 Gigatonne ‘hot air’ loophole is threatening to undermine the viability of the second commitment period of the Kyoto protocol. If Parties do not properly address the AAUs surplus this year this huge bubble of stale air may stifle the success for international climate negotiations for years to come.

During the first commitment period of the Kyoto Protocol many countries received surplus ‘hot air’ allowances based on inflated estimates of the greenhouse gases they expected to release. This hot air bubble is an estimated 9-13 Gigatonnes, about as big as the combined yearly CO2 emissions from Europe and the US.

The issue is technically, as well as politically complicated and the stakes are very high:

If this ‘hot air’ bubble is not addressed this year, the viability of the second commitment period will be seriously threatened. The current rules allow for full carry-over of up to 13 billion tonnes into the second commitment period of the Kyoto Protocol. The first commitment period of the Kyoto Protocol ends on 31 December 2012. There is less than 6 months left to find a solution.

There is no shortage of possible solutions available to deal sensibly with this surplus, including:

a) No carry-over of AAUs between the first and second commitment period

b) Limiting the carry-over of AAUs

c) Allowing carry-over but only for domestic compliance

d) Excluding Parties not committing to binding targets beyond 2012 from AAU trading

e) Abandoning the AAU trading system.

During the recent negotiations in Bonn, both the African Group and AOSIS tabled promising new proposals on how to address surplus AAUs. Both proposals make the use of surplus dependent on a country’s level of ambition in the next commitment period. If a country’s emission pledges are the same or higher than their 2008 emissions, they will not be able to use any carry over. If their mitigation targets are more stringent, they get to use a fraction of the surplus. It is very promising to see these new proposals. CDM Watch calls on the G77 to develop a technically and environmentally sound proposal ahead of the next climate change negotiations in Bangkok at the end of August. A strong and internationally acceptable proposal will be key to advance the issue before COP-18 in Doha.

The EU’s not so noble silence

Despite the urgency of the situation, the EU has remained silent during the negotiations because there is no agreement among EU member states on how to address the surplus. Poland in particular is opposed to canceling surplus AAUs. Poland has the third largest surplus (after Russia and Ukraine). While EU negotiators have somewhat become used to this silence, CDM Watch urgently calls on the EU to move back into the driver’s seat.The EU has a contradictory stance: on the one hand, they have been very vocal in calling for meaningful mitigation actions. The EU has also made its participation under a second Kyoto commitment period conditional on solving the AAU surplus issue. In the international negotiations on the other hand, the EU has remained silent and has failed to constructively find solutions. This contradictory stance has to come to an end if progress on a solution for the AAU surplus is to be agreed on by the end of the year.

For an international solution on addressing the AAU surplus, a strong position by the EU, to be agreed at the next Environment Council in October 2012 is essential. Closing this loophole is especially important if Europe wants to strengthen its leadership role in the climate mitigation and be in a position to act as a strong negotiator at the upcoming UNFCCC meetings. If no international solutions are found for the surplus and other loophole issues this year, the EU’s climate flagship will sink and these problems are certain to resurface after 2020.

EU background

Under the EU’s Effort Sharing decisions (ESD) the use of surplus AAUs is not possible. But no such provision exists for the EU-ETS: EUAs are shadowed by AAUs – for each EUA sold an AAU has to be retired. The EU-ETS is currently considerably over-supplied: the surplus from phase 2 is estimated to be close to 900 Mt. The EU-ETS allows for banking into the 3rd commitment period. Banking the EUAs from the second ETS commitment period into the third commitment period means bringing surplus AAUs into the next Kyoto Protocol commitment period. If the goal of closing this loophole is achieved, the actual EU emissions reduction target could be increased by up to 900 million tonnes by 2020.