Saving them for use under a new global-warming treaty
Ukraine and Russia plan to stockpile credits to release greenhouse gases jointly valued at $89 billion, saving them for use by their factories, power plants and home heaters under a new global-warming treaty taking effect in 2013, Bloomberg reported.
Both nations are building up surpluses of credits, or rights to release heat-trapping gases regulated by the Kyoto Protocol accord to stem climate change. Banking them for compliance with a new treaty after Kyoto limits expire in 2012 will ease future burdens on the most polluting industries, helping economic growth.
Ukraine will reserve 1 billion of its likely 2.5 billion in surplus credits, Taras Bebeshko, director of market development at the National Environmental Investment Agency of Ukraine, said in an interview. “One-and-a-half billion will never, ever be sold for the first compliance period,” Bebeshko said. “This is a national reserve for development of the economy.”
Russia last week said it will likewise hold surplus credits to comply with limits under a new climate treaty, or about 3.3 billion, according to World Bank figures. The combined stockpile would cover about 2 1/2 years of emissions from all the factories and power plants in the 27-member European Union.
The decisions by Russia and Ukraine illustrate how they are preparing for the next decade rather than selling spare credits to nations such as Spain or Italy. Those countries are short of Kyoto credits, called “assigned amount units,” or AAUs. They will have to buy them in the markets or from other nations with surpluses.
AAUs are issued by the United Nations under the 1997 Kyoto Protocol. Each is a national license to release the equivalent of 1 metric ton (2,200 pounds) of carbon dioxide, the main greenhouse gas, from utilities and factories to cars and home heaters. Last week UN negotiators agreed to embark on one year of negotiations to sign a new global warming treaty in Copenhagen.
Flooding Market
Flooding the market with AAUs could depress the price of other emission credits that may also be used by countries struggling to meet Kyoto caps. One such alternative is the benchmark Certified Emission Reduction unit, also sponsored by the United Nations. UN certified emission reductions for December rose 2.4 percent to 13.60 euros ($18.50) a metric ton today on the European Climate Exchange in London.
“Everyone is concerned about the potential oversupply” of credits to countries, Bebeshko said. “We would like the market to be stronger and more prosperous.”
Ukraine’s 1.5 billion credits, which can be used to release 1.5 billion metric tons of greenhouse gases, are worth $27.8 billion, based on today’s price for a CER. Russia’s 3.3 billion AAUs are worth $61.1 billion, by the same method.
Collapse of Communism
Russia and Ukraine have the biggest potential stockpile of credits among the 37 nations with Kyoto emissions limits. That’s because many of their dirtiest industries shut down after communism’s collapse, making it relatively easy to meet greenhouse-gas targets set under Kyoto.
Carbon analysts and global organizations track the supply of credits to estimate potential costs for regulated polluters and to gauge how well carbon limits are serving to stem climate change.
The World Bank forecast in May there would be 53 percent more emission permits available through 2012 than were needed by regulated countries. That assumed nations with surpluses would sell AAUs covering 1.9 billion tons of emissions, including 1.2 billion from Ukraine and none from Russia. With no AAUs, the markets may be undersupplied by 25 percent, the World Bank said. Since then, analysts have curbed their estimates for likely demand from EU factories and power stations for credits.
Ukraine may use some of the 1.5 billion tons of remaining credits to cover unforeseen emissions of its own, Bebeshko said in an interview Dec. 12 in Poznan, Poland. That was the site of two weeks of UN debate over the next climate treaty.
Canada, Japan
Releasing even 1 billion may still cause an oversupply, said Trevor Sikorski, an analyst in London with Barclays Capital. “A gigaton of supply coming into the market will fill much of the demand from governments,” he said today by phone.
The biggest potential demand is in Canada, at about 1.1 billion tons, which is unlikely to materialize because that nation has signaled it’s too expensive, he said.
Japan’s total needed purchases of about 820 million tons have already been about half-satisfied by buying UN CERs, Sikorski said in a research note last month. In short, 1 billion tons may be more than double the AAUs the market needs, his figures show.
Kyoto gave the 37 signatory nations emissions targets. Each must buy credits or similar permits for each ton of CO2 equivalent they release in excess of their limits. CO2 equivalent is a unit of measurement that includes carbon dioxide and five other greenhouse gases regulated by the protocol.