Summary

A key consideration for the Paris treaty is how to incentivize real additional climate action while avoiding the laundering of bogus hot air credits. Under the Kyoto Protocol the lack of environmental integrity in market mechanisms has resulted in an 11 gigatonne hot air loophole. These hot air units are called AAUs which will not pose a problem for the Paris climate treaty since they cannot be used after 2020. However, the fate of the hot air units of existing domestic emissions trading systems still hangs in the balance.

Currently all the carbon markets around the world are over-allocated with surplus emission allowances. In the EU by 2020 a surplus equal to up to 4.5 GtCO2e is expected to accumulate in the EU’s Emissions Trading System (EU ETS). Under current policies, this hot air could be carried-over into the post-2020 period and significantly undermine the environmental integrity of the EU ETS.

The EU has committed to reducing its overall emissions by at least 40% below 1990 levels by 2030. While in theory this will result in about 4 GtCO2e emission reductions, the carry-over of the EU’s hot air could reduce this 2030 climate action commitment to as little as 1.6 GtCO2e. This would reduce the EU’s 2030 target to merely 32% effective emission reductions.

Unfortunately nothing currently prohibits Parties to use and trade hot air allowances to comply with the post-2020 commitments submitted to the UNFCCC.

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