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Trading air

  • 30/07/1998

A review of the positions of these three groups shows important differences in approach towards trading, as well as their approach towards the three mechanisms laid out in the Kyoto Protocol: Joint Implementation (Article 6), CDM (Article 12) and Emissions Trading (Article 17).

There are important differences between the Free Raiders and Free Bubbles groups and they have differences with the (Not) For Sale Group.

Between the first two, the main differences are as follows;

- Caps on non-domestic trading. The Kyoto Protocol says that in the case of joint implementation and emissions trading the acquisition of emission reduction units will be "supplemental to domestic action". In the case of the CDM, it says that industrialised countries may use the certified emission reduction units to contribute to compliance "with part of" their emission reduction targets.The point is what amount is therefore "supplemental" or a "part of" the domestic measures to curtail emissions. The Free Raiders group wants no caps on what it will achieve on the domestic front or through international trade. It would like to be able to buy the "cheapest" option and minimise its domestic costs. The first official economic estimates of the US government are based on the purchase of as much as 80 per cent of the emissions reduction units from the CDM. Russia and Ukraine were given the targets of stabilising at 1990 levels by 2010. As their current emissions are 20-30 per cent lower than those levels, there is an enormous amount of "hot air" for sale. Their surplus emission permits amount to over six per cent of Annex 1 emissions which they will be available to sell back into the trading system.

The position paper, of this group led by the US says that while the article provides that trading must be "supplemental to domestic action it does not quantify that term or authorise the COP to quantify it." It goes on to use its favourite ratification blackmail to say that " the ability to trade without quantitative restrictions would encourage ratification, encourage earlier emission reduction" and most importantly, would "minimise the overall cost" of achieving the collective environmental objective.

The EU position on this issue is to emphasize "supplementarity". It believes that "domestic action should provide the main means of achieving commitments and calls for a "concrete ceiling on the use of all the flexibility mechanisms to be defined." The EU would want that the "net transfers by a party shall not be greater than the amount of emissions reduced by that party as a result of domestic action." In other words, atleast half the emission reduction must happen at home. The EU is worried that the "hot air" purchase by the JUSSCANNZ group could come at a lower cost than its own internal bubble purchase in which some countries would have to reduce their emissions to provide for emission growth in others.

How free and unregulated should the trading in atmosphere be? There are important differences and similarities in the approach of these two blocks on the issue of making the atmosphere a free and openly traded commodity.

Trading should be done by "legal entities" that is private parties should be allowed to trade. Both agree on this. JUSSCANNZ defines the "legal entities" as including private individuals, companies, societies (which could include environmental and other non-governmental organisations), industry groups and brokers.

Who will be responsible for the "legal entities". The EU holds the parties the countries responsible for compliance and not the legal entity. JUSSCANNZ is not specific about this.

What will be traded? JUSSCANNZ calls it Assigned amount units AAUS which would represent a tradable form of the :ssigned amount' of Annex 1. AAUS would have a unique serial number which identifies the country of origin and the relevant commitment period. The EU calls them, Parts of Assigned Amount PAA units.

What is the measure of this unit? The JUSSCANNZ wants "no differentiation of the units on the basis of data certainty for gases or sources." Both want unit to be denominated in Carbon dioxide (CO2) equivalent. The Global Warming Potentials GWPS would be used as the appropriate conversion to convert non CO2 gases into CO2 equivalent.

Institutional arrangements for trading: JUSSCANNZ does not want to establish a new international forum/institution for trading.

It would like a system to record ownership and transfers of these AAUS at the national level. It would even give two countries the privilege of merging (or consolidating) their national recording systems into one system. It would therefore, see the world as one big free market and that countries are even operate mergers if needed. It would like cartels to operate with freedom. And at the end of the commitment period which gives no room for ensuring compliance during the trading period the Party will finalise its emission inventory and submit a report to the 'designated authority.'

The EU sees a greater role for a global institution; it would want the UNFCC secretariat to be responsible for recording and reporting trade. It would even want parties to give prior notification to UNFCC of their intention to transfer or acquire units, above a specified amount.

But as far as non-compliance is concerned, both have proposed a weak, toothless system. JUSSCANNZ of course, does not even use the word penalty.

The key issue of concern to the G-77 and China is the property rights of the buyers and the sellers. In their first position paper, issued on June 5, this group made it clear that "until the question of emission rights and entitlements is addressed equitably it would not be possible to have emissions trading. The question of the legal and equitable basis of entitlements continues to occupy a central position." The group's subsequent paper also stresses this. But this is one issue on which there is complete unity among the superheated powers. They would not want to discuss emission rights. For them, the issue has been settled. They can trade their assigned amounts. And would like to do so as freely as possible.

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