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Battle to cut emissions likely to be fragmented

World Energy Council chief says regional trading platforms are most effective option

South China Morning Post – 29 August 2011

Global efforts to cut greenhouse gas emissions using market mechanisms are likely to see the formation of regional emission-trading platforms that will converge over time, according to World Energy Council secretary general Christoph Frei.

And a carbon tax, although quicker and easier to implement, was still a politically challenging way for governments to meet their emission reduction goals, Frei said.

World leaders are to meet in Durban, South Africa, in three months to negotiate a way forward and come up with solutions to fight climate change caused by rising emissions of greenhouse effect-causing gases from human economic activities.

A key issue to be discussed will be an alternative framework for countries to cement their commitments to emission reduction. The Kyoto Protocol, signed in 1997 and which binds some nations to emission reduction targets, is set to expire next year. Talks in Cancun, Mexico, last year yielded only a broad framework, with no binding agreement on emission cuts.

While pressure is high on politicians to iron out a global emissions deal soon, Frei, a Swiss national, said it would be a tall order and that a more fragmented system would be more likely in the short term.

“The most likely scenario is that regional trading platforms will be formed instead of a global one, out of sheer effectiveness,” he said.

But then such platforms were likely to slowly converge, he added.

Frei said that as some 80 per cent of the world’s greenhouse gas was emitted by the energy industry, it sorely needed clarity on future financial burdens stemming from their emissions, as well as incentives on their reductions.

“If we don’t have security for our investments, we will have a big problem,” he said.

Under the Kyoto Protocol, companies that exceed their emission quotas are allowed to offset their excess by “buying” credits from other emitters that are more efficient in cutting emissions. As it is more cost-effective to cut emissions in developed nations, companies there tend to be the buyers and those in developing ones are usually sellers.

China and other developing countries are exempt from the emission limits. The United States opposed that exemption and has never ratified the treaty.

Europeans, the main buyers of the credits, have set up a sophisticated carbon credits trading platform, drawing experience from the US trading of sulphur dioxide emissions.

Given that more countries will voluntarily commit to carbon emissions reduction, Frei sees the establishment of national or regional exchanges for the trading of emission credits.

“Emissions trading is the most effective way, theoretically, to deal with emissions reduction,” he said. “The government does not decide on the winners and losers, they are decided by the market.”

Although carbon tax, another popular way to incentivise the reduction of emissions, is simple, transparent, and more predictable compared to emissions trading, he said taxes were never popular.

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