Monday, December 08, 2008

ETS and developing countries

I am currently reading a PhD thesis on "The Economics of Power Generation and Climate Policy" and one chapter concerns the use of Joint Implementation (JI) policy (as part of the Kyoto agreement). This allows a country to finance emission reductions in another country where the marginal costs of reducing pollution are significantly lower.

The European Parliament today issued a warning on the use of carbon offsets.

One question that arises - why did Brazil rule out developed countries paying to prevent the destruction of the Amazon rain forest?

I agree with Hassi's argument that buying abroad prevents the modernisation of domestic industry but this does not mean the scheme is not the most efficient in terms of reducing global emissions.

Euro Parliament Warns On Carbon Offsets [PlanetArk]

BRUSSELS - European nations must scale back their hopes of reaching carbon reduction goals cheaply by paying for easy cuts in the developing world, a leading negotiator in EU climate talks said on Friday.

The global carbon market works by putting a cap on greenhouse gases in rich countries. They can exceed these targets, but only if they pay for corresponding emissions cuts -- known as offsets -- in the developing world.

"It's a dangerous illusion that our emissions reductions can be mainly based on CDMs (offsets) while we continue with business as usual here," said Finland's Satu Hassi, a leading European Parliament negotiator in talks with member states.

The European Parliament shares decision-making with the EU council of ministers on climate change issues.

"This adds to the arguments of those that want to diminish the EU's policy -- they'll say that Europe is about nice words and no real action."

She warned Europe risked buying up all the easiest emissions cuts, leaving developing countries with a harder and more costly task when they come around to making their own reductions.


Hassi's warning coincided with talks toward an international climate deal in Poznan, Poland, at which developing nations also warned of the dangers of offsetting.

Brazil ruled out on Thursday letting rich countries offset their greenhouse gas emissions by helping to save the Amazon rainforest, an idea under active discussion by the European Union and supported by some tropical nations.

Hassi also said that by paying for emissions cuts abroad, European nations would be losing the chance to modernize their own industries and create jobs at home.

"My guess is that rational governments will realize that for their own economies it is better to do emissions reduction investments at home," she told Reuters.

Hassi is leading negotiations on the "effort sharing" legislation -- one of five pillars to EU proposals to cut carbon dioxide emissions by a fifth by 2020.

The legislation covers around 55 percent of European CO2 emissions in areas not covered by the EU's flagship emissions trading scheme, such as transport, heating and agriculture.

But talks have become blocked because EU nations want to achieve about 70 percent of their cuts through offsets, way above the 50 percent limit demanded by parliament.

European nations also refuse to accept parliament's demands for a tough compliance mechanism to penalize countries that break their emissions limits.

Time is short, with less than a week before EU climate ministers meet in Brussels to try and clinch a final EU deal.

"I want to make this deal happen, but I'm not ready to make just any deal," Hassi said. "Success is not just measured by the closure of negotiations. It is also about what it does for the climate."


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