BARCELONA (Reuters) - Carbon market professionals hope speedy U.S. Congressional approval of a federal cap and trade scheme will boost emissions trading, which is threatened by recession and slow U.N. climate talks.
The existing Kyoto Protocol laid the foundations for emissions trading, by imposing caps on emissions in Europe and other developed countries, which is driving a $92 billion European emissions trading scheme.
The world is meant to agree a successor treaty in December in Copenhagen, but talks have been slow as rich and poor nations squabble over sharing the cost of carbon cuts.
Meanwhile severe recession and falling industrial output and pollution means governments and companies are buying fewer rights to emit greenhouse gases - potentially undermining a $126 billion global carbon market.
Last Thursday, a U.S. House of Representatives committee voted in favor of a draft climate bill at the heart of which is a “cap-and-trade” system which, if passed into law, could put the world on track for a $3 trillion carbon market by 2020.
The plans await debate in other committees and a full House vote is needed before it can go to the Senate for scrutiny.
“It is still a tough haul,” said Chelsea Maxwell, former climate change advisor to Senator John Warner, author of an earlier draft climate bill.
The December deadline for world leaders to agree on a new climate change pact to replace the Kyoto Protocol, which expires in 2012, may provide extra impetus to drive through the climate bill, analysts said. The move would show U.S. commitment to the international process.
“The bill moved very quickly through in the (Energy and Commerce) Committee, which shows the desire to have a completed package in time for Copenhagen,” said Eric Haxthausen, director of U.S. climate policy at The Nature Conservancy.
Kyoto also allows rich countries to offset their targets by funding emissions cuts in poorer ones -- creating a $33 billion offset market now suffering less demand during recession, and which could use a boost from tough U.S. carbon caps.
The precise fate of that Kyoto Protocol Clean Development Mechanism (CDM) scheme is uncertain ahead of the U.N. talks in December in Copenhagen.
And recession has led analysts to forecast that companies will need fewer, if any, emissions permits for the next two to three years. If the United States adopted its own cap and trade scheme and allowed offseting that could inject huge new demand.
“There are structural, decision-making errors and it (the CDM) does not have a good reputation in Washington, where they will determine its future,” said Marc Stuart, co-founder of project developer EcoSecurities, referring to CDM red tape.
There was a chance that if the full House passed the bill before the summer vacation in August it could become legislation by mid-2010, one expert said.
“There are real serious prospects of legislation by next June or July. I’d say the chances are better than fifty of legislation by 2010,” said George Frampton, former chairman of the White House Council on Environmental Quality.
Editing by Gerard Wynn and Anthony Barker