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TagsLondon, 13 September 2012
The first Kyoto commitment period (2008-2012), is oversupplied by some 13 billion tonnes (13.1 Gt) of CO2, according to recent analysis by Thomson Reuters Point Carbon, a leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets. This figure is over three magnitudes higher than the estimated demand of 11.5 million tonnes (Mt).
Moreover, according to Thomson Reuters Point Carbon’s estimates, if a second commitment period (2013-2020) is agreed with the current proposed set of targets, then a new surplus of Assigned Amount Units (AAUs), the tradable instrument in the Kyoto market, will be created. The new surplus could reach 3.6 Gt CO2. In other words, the caps being proposed by governments are higher than the expected business-as-usual emissions for the period. Since current rules allow for the full carry-over of AAUs, the surplus in the 2013-2020 period would therefore include the spare AAUs inherited from the first commitment period, increasing the total surplus to 16.2 Gt CO2. If Australia and New Zealand do not join the second commitment period then the surplus could be as high as 4.1 Gt CO2, or 17.2 Gt CO2 including the carry-over from the first commitment period.
“The current surplus is due in part to a lack of political ambition, undermined further by economic recession”, said Andreas Arvanitakis, Director, Advisory Services, Thomson Reuters Point Carbon and co-author of the analysis. He added that the issue of surplus AAUs and the second commitment period will be discussed at UNFCCC’s Climate Change Conference taking place in November in Doha.
According to Arvanitakis, “the effect of the 2020 targets that have been pledged by different countries is that the market will still be oversupplied”. He believes that “unless the level of the 2020 targets for the second commitment period is changed, the market will remain oversupplied even if no AAUs from the first commitment period are carried over to the second.”
Under current rules, those countries participating in the Kyoto Protocol’s second commitment period with an emissions reduction target can carry over their surplus AAUs from the first period.
Arvanitakis explains that even in the event that a mid-point of the EU target emissions range, namely a 25% reduction on 1990 emissions levels by 2020, were agreed, the market would still be in surplus in the second commitment period by 0.8 MGt CO2. This is before the surplus from the first commitment period is added.
Only taking the high end of the range of pledges made at the Copenhagen summit, namely a 30% reduction on 1990 levels by 2020 for the EU and a 25% reduction for Australia and a 20% reduction for New Zealand on 2000 levels, does the balance in the second commitment period shift to a net shortfall of 2 Gt CO2. “However, again, all this does is to dent the 13-billion-tonne surplus from the first commitment period”, Arvanitakis said.
“Because the first commitment period is oversupplied already, the effect of these surplus AAUs on the wider carbon market in the short term is minimal”, said Olga Gassan-zade, Associate Director, Advisory Services, Thomson Reuters Point Carbon, who also co-authored the analysis. However, in the longer term the preservation of the AAU surplus might have considerable implications. “The presence of such large volumes of surplus AAUs in the Kyoto system raises legitimate questions about the current system design which should not be ignored as the future of the Kyoto Protocol is negotiated. Should the surplus of the first two commitment periods pass into the post-2020 system, then the prospect of an oversupplied market never recedes. The long-term targets should reflect that surplus or risk having their environmental integrity undermined”, she concludes.
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