CO2 market faces downside at climate talks - CMIA

London, 24 August (Argus) — There is limited upside for the carbon market at the UN's Conference of the Parties (Cop) climate summit in Doha, Qatar, at the end of this year, but there is a “huge potential downside”, director of Climate Markets and Investment Association (CMIA) Miles Austin said.

The parties need to reach an agreement on a second commitment period for the Kyoto protocol at the climate change talks. “This will not create new demand, but will support existing investments and support the case for future investments,” Austin said.

The convention should also produce an amendment to the Marrakesh Accords to open up use of certified emission reduction (CER) and emission reduction units (ERUs) for non-annex 1 countries, he said.

It is imperative that clear progress be made with regard to having the new climate change agreement signed in 2015. “We need progress to deepen emissions cuts, which science tells us we need to do, but the political process is not reflecting.”

The indications are that the next intergovernmental panel on climate change report will clearly illustrate that countries need to do more to prevent runaway climate change, Austin said. “There is currently significant dissonance between political progress and scientific consensus.”

And measures are needed to support the EU emissions trading scheme (ETS) outside of the climate change talks in Doha.

The CMIA supports the European Commission's proposal to “back-load” allowances from auctions during phase 3 of the scheme, but this measure will not be sufficient to support the market, Austin said. “We would support a move to cancel the back-loaded allowances because otherwise you are only deferring the oversupply,” he said. Under the proposal, allowances will be reintroduced to the scheme in the final years of phase 3.

There are companies with a significant amount of surplus allowances because of the economic recession. “The best approach is to take a three-year window and calculate how many allowances there should be in the system at that point. If there are more EU allowances than you would anticipate, then you hold them back from the next auction.” This automatic process would be entirely predictable, he said.

It is also necessary to move to a 30pc emission reduction target, “despite the radically differing economic and political views that exist across the EU”. It is time for the EU to adopt a climate change strategy that is aligned with scientific thinking, Austin said.

There must also be compensatory measures implemented to correct for the energy efficiency directive. “The ETS is the central plank of EU climate policy,” Austin said. “If a parallel policy can undermine that, we need to correct for it.”

The back-loading proposal is to compensate for the oversupply because of the economic recession, but the set-aside was intended to compensate for the EU energy efficiency directive (EED). “We still need a set-aside for the EED and any other parallel policy that affects the EU ETS — it is simply joined-up policy.”

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