EU's domestic-only climate proposal reflects global stalemate

BONN Wed Mar 12, 2014 3:46pm EDT

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BONN (Reuters) - The European Union had little choice in proposing not to outsource more of its emission cuts abroad to meet a 2030 target because the slow pace of global talks to develop new carbon markets gave it nothing to buy, a senior EU official said.

The European Commission in January proposed cutting the bloc's greenhouse gas output by 40 percent under 1990 levels entirely from reductions made within the 28-nation EU unless a global climate change agreement requires it to deepen the goal.

Juergen Lefevere, a senior official at the Commission - the EU's executive arm - insisted the bloc was willing to open up its carbon market but was restricted by a lack of reform at international level.

"All of the work on this has moved tremendously slowly or not at all," he said on the sidelines of the latest round of U.N. climate negotiations in Bonn, Germany.

"That provides us with a challenge where there is no definite framework out there. How can we expect to buy international credits from something we haven't seen defined?"

International talks on how to set up new markets and links via common accounting standards have been shelved until June after breaking down last year. Poor nations refused to allow progress without guarantees that richer countries increase efforts to cut their own emissions.

MIXED RESPONSE

The lack of an explicit signal that the EU would welcome international carbon credits dismayed industry proponents who favor using markets to reduce as cheaply as possible greenhouse gas emissions blamed for flooding, droughts and storms.

"It's the big missing link in the EU proposal. There is still a need for the EU to be a leader and to promote a vision of global cooperation," said Dirk Forrister, president and CEO of the International Emissions Trading Association (IETA).

The EU had hoped that progress on devising new carbon markets would be one of the early agreements towards signing a new global climate deal in Paris in 2015, which would enter into force from 2020.

But some developing countries have shown no sign of budging in their stance to block progress without commitments from rich nations to help them adapt to the effects of climate change.

"Developing countries need predictable, stable and adequate sources of finance to tackle climate change - a total contrast with our experience with markets so far," Naderev Sano, a negotiator from the Philippines, said on Wednesday in Bonn.

MARKET DOWNTURN

The Clean Development Mechanism, the United Nations' main carbon market, allows projects in the developing world to earn carbon credits. It has helped channel more than $315 billion to poor nations over the past 10 years.

Europe and Japan have bought the lion's share of the 2.2 billion U.N.-backed carbon credits issued to date, with EU firms allowed to use 1.6 billion units to meet their obligations to 2020 under the bloc's Emissions Trading System (ETS).

But the EU has approved no additional credits for use since 2008. It has also banned several types of unit amid concerns about their environmental integrity and to encourage emerging economies to pay for more of their own emission cuts.

With few other sources of demand, the supply of credits ballooned and hammered prices to a record low of 0.14 euro ($0.19) per ton of emissions on Tuesday from over 20 euros five years ago, slashing investment in new schemes.

Several European governments have pledged to pay well above market rates for credits from the poorest nations while the EU extended technical support to wealthier economies such as China, Mexico and South Korea to help set up their own emissions trading systems.

But efforts to link the EU ETS directly with more advanced schemes in Australia and Switzerland have been put on hold due to political concerns in those nations.

Despite this, IETA's Forrister said he was encouraged by the EU's statement at this week's Bonn talks that it would consider the use of international credits as part of a potentially deeper emission target in a 2015 global deal.

"That was a helpful signal - and other countries took note," he said. ($1 = 0.7212 euros)

(Editing by Dale Hudson)

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