Dear friends,

Carbon markets are in the dumps and policy makers and market participants alike are scrambling to come to their rescue. The Carbon Expo in Barcelona just came to a close and the next intercessional UNFCCC conference of this year starts in Bonn on 3 June. This year’s Carbon Expo praised carbon markets as “a fundamental tool to expediently spur economy-wide abatement activities and steer finance towards low carbon technologies”. But the reality is that demand for carbon market units is at an all-time low. Current prices are looming at around 0.4 Euro for Clean Development Mechanism (CDM) offset credits and at around 4 Euros for European allowances. Prices are too low to finance low carbon technologies. On the contrary, in the absence of more stringent climate targets, fossil fuel use continues unabated, the emissions reductions due to the economic downturn are unsustainable and the public’s and private sector’s confidence in market mechanisms is waning.

The upcoming UNFCCC intercessional gives Parties another opportunity raise their mitigation pledges and to address the current oversupply of offset credits from both the CDM and Joint Implementation (JI). This oversupply is in no small part due to the lack of sufficient quality restriction which has led to hundreds of millions of offsets being issued that have limited or no environmental integrity. This year Parties get a chance to improve the quality of both programs, as they are scheduled to revise both the rules that govern the CDM and JI. Countries will also continue to discuss whether and how new carbon markets and their units should be approved both under the Framework for Various Approaches (FVA) and through the New Market Mechanism (NMM).

2013 is also crunch-time to draw up a deal to address emissions from aviation. The Assembly of the International Civil Aviation Organisation (ICAO) will be held in September 2013. There countries are supposed to agree on a framework for market-based measures to address international aviation emissions and on the feasibility of a global MBM. But the measures on the table are too weak to address emissions from aviation sufficiently and it is far from certain that countries will come to any agreement.

In Europe, the quest to prop up depressed CO2 prices in the European Union’s Emissions Trading Scheme (EU ETS) is continuing. After the narrow rejection of the back-loading proposal in April, the European Parliament is expected to have a second vote in July. In this newsletter we also give an overview of the other main EU climate policy: the lesser known  Effort Sharing Decision (ESD), which covers almost all sectors not included in the EU-ETS. These ESD sectors are responsible for 60% of the EU’s greenhouse gas emissions, yet current reduction goals in the ESD are weak and instead of taking advantage of the huge reduction potential in these sectors, EU countries will have to do little until 2020.

Finally, Carbon Market Watch is in China to closely follow developments around the expected launch of 7 regional pilot emissions trading systems in the coming months. Stay tuned!

Happy Reading!

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