Oslo, 6 October 2010

Seven countries need to do more to meet their Kyoto targets, according to analysis carried out by Point Carbon. The seven countries are short by some 332 Mt for the 2008-2012 period in terms of their expected emissions and planned available Kyoto Protocol units (CERs, ERUs and AAUs), up from 283 Mt three months ago.

Spain, Italy and Japan display the greatest projected deficits of 108 Mt, 107 Mt and 70 Mt respectively. Italy’s reduction in its government purchasing plan (GPP) for Kyoto units from 85 Mt to 30.8 Mt over the 2008-12 period is pinpointed by Point Carbon as the main reason for the increase. The lowering of Italy’s GPP follows a 9% drop in the country’s total emissions, from 541 Mt in 2008 to 493 Mt in 2009, according to government data. However, “even though emissions are down, due to the recession, Italy still needs to do more to meet its Kyoto target”, said This e-mail address is being protected from spambots. You need JavaScript enabled to view it , a senior analyst at Point Carbon and author of the analysis. The remaining four countries with deficits are Austria, Ireland, Switzerland and Iceland.

The seven countries with deficits may purchase additional Certified Emission Reductions (CERs), Emission Reduction Units (ERUs) or Assigned Amount Units (AAUs), or alternatively reduce emissions domestically, to be in compliance with their Kyoto obligations. “Given that we are already more than halfway through the Kyoto period, we consider purchases to be the most likely compliance option”, explains Tvinnereim, adding “specifically, we expect most of remaining Kyoto deficits to be filled using AAUs”.

Tvinnereim explains that “while in the past, most GPPs have focused on investments in Clean Development Mechanism ( CDM) and Joint Implementation (JI) projects, AAUs have become more interesting for government buyers as the project markets have delivered fewer credits than forecasted. Partly as a result, governments have become more active in the AAU market. Countries like Italy, Spain and Japan, for example, which need large extra volumes of carbon credits “are more likely to tap into the AAU market because large volumes of CERs and ERUs might be difficult to source at an acceptable price”, said Tvinnereim.

Japan’s GPP includes 72m AAUs out of 100m units in total, Spain’s includes 30m AAUs out of a total invested volume of 74m units and Italy, as a relative latecomer, will probably find it hard to source enough credits from the CDM and JI and might thus need to rely heavily on AAUs to fill its remaining Kyoto gap.

Tvinnereim concludes “clearly the interaction between AAUs and CERs/ERUs will continue and the final distribution of these units among buyers will be a result of several factors, notably prices, availability, risk profile, timing and greening performance. However, I suspect that AAUs may begin to dominate as investing now in the primary CDM market won’t get you many credits during the Kyoto period, while governments are reluctant to pay the higher prices seen in the secondary CDM market.”

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