Huge Oversupply Renders Kyoto Protocol Emissions Market Ineffective

The first phase of the Kyoto Protocol's (KP) emissions offset market is drawing to a close with just over 13 billion giga tons (Gt) of surplus of emissions offset credits, more than a thousand times greater than anticipated demand of 11.5 million mega tons (Mt). The balance of supply and demand is only going to get worse as an anticipated second phase of the KP program kicks off next year with the overall surplus reaching as high as 16.2 Gt CO2. It could possibly reach 17.2 Gt if Australia and New Zealand don't link their national emissions offsets markets with KP's, according to a study from Thomson Reuters Point Carbon commissioned by CDM Watch.

The combination of weak 2020 national emissions reduction pledges on the part of developed countries, leniency as to the use of offsets and the burgeoning surplus renders the Kyoto Protocol and national emissions markets ineffective and incapable of fulfilling their fundamental reason for being: achieving significant reductions in carbon and greenhouse gas (GHG) emissions worldwide.

Carbon emissions may grow more than worst-case "business as usual" scenario

In fact, developed countries will actually be able to emit 3.6 billion metric tons more of CO2 than they are projected to emit under worst-case “business-as-usual” (BAU) emissions projections out to 2020, according to Point Carbon's, “Carry-over of AAUs from CP1-CP2—Future implications for the Climate regime.” That's a big factor in the accumulation of a 16.2 Gt surplus in KP emissions offset credits that Thomson Reuters Point Carbon analysts foresee.

“The current surplus is due in part to a lack of political ambition, undermined further by economic recession,” elaborated Andreas Arvanitakis, report co-author and director, Advisory Services at Thomson Reuters Point Carbon. 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.

The EU Emissions Trading System (ETS) is by far the largest carbon offset market experiment in the world today. Unfortunately, the EU ETS market would still have a surplus 0.8 Gt CO2 in KP's second stage even if EU governments were to agree to a mid-point of the EU target emissions range—a 25 percent reduction on 1990 emissions levels by 2020, he added. And that excludes surplus credits carried over from the first commitment period.

“The surplus is over three magnitudes higher than the estimated demand of 11.5 million tonnes (Mt),” according to a Thomson Reuters Point Carbon press release. Russia (5.8), Ukraine (2.6) and Poland (0.8) are the largest surplus holders, followed by Romania (0.7), the UK (0.5) and Germany (0.5).

What use are international agreements?

Such developments raise the most serious, fundamental questions regarding the efficacy of international accords and international organizations' ability to actually deliver real results when it comes to addressing the most urgent and pressing issues.

Just as is the case in national politics, it appears that the very international institutions people look to for social and economic development, equity and justice are captured by big business and banking interests. Here you have national governments cooperating under the auspices of the United Nations Framework Convention on Climate Change's (UNFCCC) Kyoto Protocol with the goal of stimulating and fostering a global shift to low-carbon, green economies—a worthy and increasing urgent need.

The rub lies in actually moving from the high-minded words and objective in international treaties and accords to effective actions in the real world. There's been no shortage of academic and professional research papers, panels and conferences attesting as to how market mechanisms, such as carbon emissions offset markets, can catalyze a global green energy transition. Performance to date show otherwise.

In moving from theory to implementation and practice, the rules of the carbon emissions market game have been written so far in favor of vested energy industry oligopolies as to essentially neuter them. That's only going to add to a loss in credibility for our most prominent international organizations and for national government representatives. Even more serious, it means there's been a gross misallocation of time, money, human effort and other resources devoted to erecting carbon emissions offset markets. And worse yet, it means that the rise in human carbon and GHG emissions is likely to continue.

*Graphic credit: Zfacts