Hot air’ threat to Copenhagen agreement.
In Nikolai Gogol’s best-known novel, an itinerant swindler called Chichikov lands on a get-rich-quick scheme, buying up “dead souls”, the ownership deeds to dead serfs, which he plans to use as collateral for a loan. Some analysts detect echoes of the great Russian novel in the current international talks on climate change. Credits that exist on paper as licences to emit greenhouse gases are threatening the chances of reaching a global deal at Copenhagen in December.
According to a paper* published by the Finnish Institute of International Affairs (FIIA), which takes its title from Gogol’s novel, the abundance of surplus credits – disparagingly described as “hot air” by environmental campaigners – are “an extreme threat to both the environmental and market integrity of the Copenhagen agreement”.
Carbon trade
The roots of this particular story lie in the 1997 Kyoto Protocol. Kyoto created a multi-billion euro market in ‘hot air’, in that it allowed countries to trade the right to emit carbon dioxide (CO2). The right to emit one tonne of carbon dioxide is known in climate jargon as an assigned amount unit (AAU). Countries of the former communist bloc, including the EU’s ten central and east European members as well as Russia and Ukraine, have accumulated billions of unused AAUs, because the collapse of their industry in the 1990s made it easier for them to meet their Kyoto targets.
The FIIA paper estimates that these countries have up to ten billion surplus credits. If this accumulation were left in the international system, emission-reduction targets would be significantly less demanding. A paper published yesterday (28 October) by the Climate Action Network, a non-governmental organisation, and Point Carbon, an analysis firm, estimates that carrying over AAUs would significantly weaken the current emissions pledges. They would be worth no more than a 6% cut by 2020, instead of the 20% the EU is aiming for.
Commission worries
The European Commission is worried that a large number of surplus credits sloshing around carbon markets could depress prices in its emissions trading system (ETS).
“If it is not addressed we could have a collapse of the ETS or the price of allowances,” according to Stavros Dimas, the European commissioner for environment.
As host of the UN climate summit, Denmark is also concerned. There should be no “hot air for sale”, Connie Hedegaard , Denmark’s environment minister, has insisted. “If surplus credits were carried forward…the credibility and the legitimacy of the EU’s position would be put at stake.”
But this is not just a technical row. Central and eastern European countries firmly reject the ‘hot air’ label and talk of the “big investments” to modernise their economies. “We earned this…this is money. It is unacceptable to ask us to get rid of this,” said one official.
But signs of a softening in the central and eastern member states’ position have emerged. Earlier this month, their environment ministers agreed that AAUs could “affect” the environmental integrity of a Copenhagen deal, although they threw out more robust language. Poland, the most vociferous defender of surplus credits, has also proposed restrictions on how and when AAUs are sold, to ensure that they do not flood the market. The Polish proposal, even if it has been rejected by other countries, still shows that efforts to find a compromise have begun.
Hot air
While EU member states have (just about) agreed that ‘hot air’ is a problem, they have not yet decided what to do about it. One option, previously mooted by the Commission, is to mop up excess credits with tougher emissions-reduction targets. But central and eastern European countries have already rejected this option and it is unlikely to fly in international negotiations.
Another option is a grand bargain linking surplus carbon credits and the EU’s contribution to climate finance for developing countries. A similar east-west split is evident on climate finance, with Poland and some of its neighbours pressing for clarity on how costs will be shared before the EU makes an offer. EU sources have suggested that a possible deal could emerge from this week’s European Council (29-30 October), but others think that the AAU problem may be too technical to lend itself to a backroom deal at this meeting.
Swedish promises
Sweden, as holder of the presidency of the Council of Ministers, has promised to steer the EU to a common position before the Copenhagen summit, recognising that surplus credits could be a make-or-break issue for international talks. Russia and Ukraine have millions of AAUs – more gigatonnes of CO2 than covered by the EU’s ETS.
So far, Russia has had a low-profile role in international negotiations, but analysts fear that it could launch wrecking tactics in Copenhagen. “Russia is one of the potential blockers of a deal in Copenhagen,” write Anna Korppoo and Thomas Spencer, authors of the FIIA report. They urge developed countries to engage with Russia so as to pre-empt a possible row over surplus carbon credits that allows Russia to “hijack” Copenhagen in the final hours.
A Russian ending is not what climate-change campaigners want from the current international talks – the last sentence of Gogol’s “Dead Souls” is incomplete and the ending is deliberately ambiguous. The EU will have to lay the ghosts of the unused credits if it is to achieve something more than ambiguity and uncertainty at Copenhagen.
*Anna Korppoo and Thomas Spencer: “The dead souls: how to deal with the Russian surplus”, FIIA (2009).