8 February 2007Gerard Wynn
Carbon trading under the United Nations' Kyoto Protocol could provide a $100 billion stop-gap to clean up coal-based developing country economies until the likes of China and India are ready to accept binding emissions caps.The next 10 years are seen as critical to combat climate change, as the whole world revamps its energy infrastructure, and the costs of inaction are likely to fall on the poor who are less cushioned against increased droughts and extreme weather.But poor countries are also increasingly part of the problem. They are seen overtaking rich nations as the biggest carbon emitters soon after 2010, yet are unwilling to take action on a problem they say is historically the fault of the rich.China and Brazil this week reaffirmed, following a stark climate warning issued by the U.N., that rich countries were more to blame.Carbon trading under the Kyoto Protocol, termed the Clean Development Mechanism (CDM), can provide a bridge, making the rich bear the brunt of targets to cut emissions but letting them cut costs by paying poor countries to make the reductions."For me the most important advantage of a carbon trading scheme is generating financial flows to developing countries, and we see the beginning of this with the CDM," said Nick Stern, chief British government economist and author of a major report published in October on the economics of climate change."I'm confident we can move forward with the CDM. We argue for a scaling up. The intensity of their (developing countries') feeling on inequity must be understood," he told British politicians this week.Developing countries like South Africa, China and India are sitting on coal reserves that could send all the West's efforts to combat climate change up in smoke."The challenge is how you can use a carbon market to put in place incentives for China and India to use their coal in a cleaner way, for example using carbon capture and storage," said the U.N.'s climate change chief, Yvo de Boer.That North-South trade could be worth $100 billion annually, assuming rich countries agree to steep emissions cuts and pay for half of those in developing countries, he said."You could almost come to a self-financing climate compact where action in the North is paying for action in the South," de Boer said last week in the wake of the U.N. climate change warning published in Paris.FLAWED PLANProblems abound with the scaling up of CDM, worth about $3 billion last year, far from the dream of $100 billion.First, investment so far has been dominated by the destruction of potent, industrial greenhouse gases like HFCs and nitrous oxide, largely in China.The Chinese have taxed such investments also to fund renewable energy projects, but this is seen as hogging investor attention, potentially diverting money away from other projects and countries, for example in Africa and South America.Secondly, any tougher, expanded regime after 2012 would depend on getting global consensus on a new climate deal, the prospects of which have not improved after China and Brazil said the West must bear most responsibility."That's not exactly positive in terms of the possible movements of countries like China, Brazil and India," said the outgoing chair of talks on a new global deal, Michael Zammit Cutajar. "There'll be tough negotiations ahead."And some industrialised countries may be wavering on accepting caps in the future."Russia is not very willing to continue with the present system. They don't want someone telling them how much they can emit," said one U.N. official who declined to be named.Finally -- at some point in the next 15 to 20 years developed countries' emissions will simply be too small to use them as a lever to cut emissions by poor countries."CDM can be a useful interim measure," said Annie Petsonk, International Counsel for the U.S. NGO Environmental Defense."But large-emitting developing countries will have to cap total emissions eventually."
(This story is part of a Reuters package on carbon trading under Kyoto)
http://today.reuters.co.uk/news/CrisesArticle.aspx?storyId=L08852115&WTmodLoc=World-R5-Alertnet-3
