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Doha: analysts modestly optimistic for Kyoto 2

Oslo, 26 November 2012

There is “a sentiment of modest optimism” going into the UNFCCC’s Climate Conference in Doha, according to Hæge Fjellheim, Senior Analyst, Thomson Reuters Point Carbon. “The negotiations leading up to Doha have been progressing well and we believe that Parties will manage to close the deal” she said, warning that “the alternative would be disastrous for the international negotiation process”. Thomson Reuters Point Carbon is the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

“The deal” in question is ensuring the extension of the Kyoto Protocol with a second commitment period, also known as “Kyoto 2”. Kyoto 2 would curb emissions of only the EU and a few other countries since the US and Canada are not part of the Protocol, and Russia, Japan and New Zealand have said they will not sign up to a second commitment period.

The first commitment period of the Kyoto Protocol (2008-2012) covers nearly 64% of developed country emissions in 1990 and initially had the overall ambition level of delivering a 5.2% reduction compared to the base year. It is expected that a second commitment period of the Kyoto Protocol will cover less than 15% of world emissions, illustrative not only of the effect of major countries abandoning the Protocol but also of the shift in emissions profile between the developed and the developing world.

Success or failure in Doha will mainly be defined by the outcome of the negotiations on a Kyoto 2 agreement. If countries are able to reach an agreement on Kyoto 2, this could have a positive spill-over effect for other aspects of the negotiations. However, failure to secure Kyoto 2 would negatively affect most issues in the negotiations and the Doha summit “would be a fiasco”, says Fjellheim.

A number of issues will have to be solved in order to reach agreement on a second commitment period under the Kyoto Protocol.

One of these issues is the level of ambition of participating nations. Many developing countries are not satisfied with the ambition levels embedded in the proposed Kyoto 2 targets but it is unlikely that any countries will come forward with more ambitious reduction targets in Doha.

Similarly, the length of the second commitment period had not yet been agreed. The developing countries favour a 5-year commitment so as to avoid locking in what they view as insufficient and environmentally irresponsible targets, while the EU and other developed countries want an 8-year period to avoid a gap before the new global agreement should enter into force and to align the Kyoto framework with existing national legislation.

The issue of carry-over of Assigned Amount Unit (AAU) surplus is, however, potentially the most difficult issue that needs to be resolved for a Kyoto 2 deal to surface in Doha. Several countries in Eastern Europe have a huge surplus of AAUs from Kyoto 1 and they want to carry this over to the next commitment period, while other countries want to limit or ban such carry-over to protect the environmental integrity of the Protocol.

“The AAU issue will probably be the most difficult to resolve and the EU is divided internally. It will be very challenging to find a solution to this issue, but in practical terms the AAU surplus will have a negligible impact on the levels of ambition for the 2013-20 period. AAUs cannot be used for compliance in any emissions trading scheme, nor for compliance with EU reduction targets for 2020. Thus, there will be no buyers of AAUs in the 2013-20 period and these credits will probably hold a market value very close to zero,” says Fjellheim.

“With regard to existing market mechanisms namely the Clean Development Mechanism (CDM) and Joint Implementation (JI) there might be some progress on negotiations to reform these in Doha. However, the low reduction targets for the period up to 2020 will not create any demand for such credits, and CDM/JI will probably continue its slow death over the coming years. The same goes for the new market mechanisms. Although there could be some progress on the design of such mechanisms, there will not be any strong push to implement such mechanisms over the next years due to the low reduction targets for the 2013-20 period,” according to Fjellheim.

Last year’s summit in Durban launched the process to agree on a global agreement with legal force from 2020, with a deadline for the negotiations in 2015.

"Those expecting ground breaking progress on the post 2020 climate regime or firm commitments on climate financing in Doha will be disappointed. The center of attention for this year’s meeting will be Kyoto 2, and the thorny issues related to a post-2020 framework will be the focus of the next climate summits,” Fjellheim concluded.

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