In the run-up to the UN Climate Change Conference in Bali from 3-14 December 2007 where a successor to the Kyoto Treaty will be on the drawing board, I've decided to put up some features that place the challenges in establishing a global carbon trading regime into focus. I'm sure you're aware of Kevin Rudd's election as Australian PM and his stated intention of signing on to Kyoto which further isolates the US as the only developed country enviro-renegade. Yet, a few developed countries which have already signed on to Kyoto don't seem to be happy campers right now. Bloomberg points out that Japan, Italy, and Spain have been hit with a combined tab totaling $33B [!] for exceeding their caps. Worse, Italy and Japan are sticking taxpayers with a lion's share of the bill:Japan, Italy and Spain face fines of as much as $33 billion combined for failing to reduce greenhouse-gas emissions as promised under the Kyoto treaty. The three countries are the worst performers among 36 nations that agreed to curb carbon dioxide gases that cause climate change. The 1997 Kyoto accord designed to slow global warming demands that polluting nations buy credits for their excess emissions from other industrial polluters or investors.
``They're looking at a huge bill now,'' said Mike Rosenberg, management professor at the University of Navarra's IESE Business School in Barcelona. ``That is because none would pay to reconvert factories, power plants and paper mills'' to trim gases blamed for the planet-warming ``greenhouse effect.''
Penalties imposed by the Kyoto treaty have spurred emission reductions. Spanish utility Iberdrola SA in the last five years turned itself into the world's largest owner of wind-energy parks, cutting CO2, or carbon dioxide, emissions per kilowatt by 15 percent this year.
Spain, Italy and Japan are likely to miss their Kyoto commitments because they underestimated economic growth and future emissions from factories and utilities.
Under the Kyoto Protocol to the UN Climate Change treaty, endorsed by 175 nations and organizations, countries that exceed their emission caps must buy credits in the market. The sellers are typically investors or industrial polluters that have accumulated a surplus of credits, also called permits. Spain faces a $7.8 billion cost, and Italy and Japan each may owe about $13 billion, based on estimates by their governments and the current price for permits.
``They were all too optimistic about mitigation measures,'' Milo Sjardin, a senior associate at London-based New Carbon Finance, an emissions research firm, said in an interview. ``They're going to have to go out and buy credits for the excess...''
Spain will pass 40 percent of the cost for the extra emissions on to businesses, Secretary of State for Energy Ignasi Nieto told journalists in Madrid July 31. The rest will come from taxes. The penalties will hit local utilities including Endesa SA and refiners such as Compania Espanola de Petroleos SA, or Cepsa. ``Our negotiators didn't have a clue what they were getting into'' at Kyoto, Cepsa Chairman Carlos Perez de Bricio said at a conference in Madrid June 8.
In Italy, taxpayers will foot 75 percent of the bill for extra permits. ``Italy's behind, and we need to keep cutting emissions,'' said Environment Minister Alfonso Pecoraro Scanio on Sept. 13 in Rome. Japanese taxpayers will pay for two-thirds of that nation's excess, New Carbon Finance estimated, based on the current sharing between state funding and industry.
The government of Japan has begun buying credits. It may consider introducing daylight saving time and emissions trading. Emissions were 1.341 billion metric tons in the year ended March, up 6.4 percent from 1990 levels, a preliminary report released on Nov. 5 by the environment ministry showed.
Japan is missing milestones because road-transport emissions jumped 23 percent since 1990, and power and heat production gained almost as much, the Paris-based International Energy Agency data shows. The country was ``overly optimistic'' on potential benefits from nuclear generation and forestry to curb CO2, Sjardin said.
Even the somewhat more ecologically sensitive Brazil (by LDC standards) joins developing country opposition to including LDCs in a carbon regime. Brazil is the world's 4th largest GHG emitter, largely due to deforestation. Their reasoning is similar to China's: since the dawn of industrialization, developed countries have accounted for the bulk of carbon emissions and so must bear a greater share of the burden in combating climate change:
Brazil reiterated its opposition on Wednesday to imposing targets on developing countries' carbon emissions, days before a major international conference on climate change. A United Nations report on Tuesday recommended that developing countries cut their carbon emissions at least 20 percent by 2050. Rich nations should cut theirs by 80 percent over the same period, it said. [Visit the UN Development Program site for this report.]
"We are not in favor of targets," Sergio Serra, a foreign ministry expert on climate change, told a news conference in the capital Brasilia...
"The principal responsibility lies with the industrialized countries," said Everton Vargas, under-secretary for political affairs at the foreign ministry.
"Our offer is to adopt verifiable policies at a national level to combat climate change -- we have our own targets," Vargas added...
Brazil is a pioneer in low-emissions ethanol derived from sugar cane and most of its electricity is derived from clean hydropower. But it is also a large carbon emitter, due largely to the destruction of the Amazon forest. Tropical forests release stored carbon dioxide when trees are burnt or decompose.
Brazil wants rich nations at the Bali conference to pay for poor countries to adapt to climate change. It also hopes for pledges of technology transfers to help coal-dependent countries, such as China or Mozambique, control emissions.
Speaking of burning down tropical forests, Indonesia, the world's third largest greenhouse gas emitter after China and the US largely due to forest clearing, is also coming to grips with biofuel's role. It turns out that the rising demand for supposedly environmentally-friendly biofuels is now driving a growing portion of distinctly environmentally-unfriendly forest clearing in Indonesia:
Which is exactly what Riau province is, in a way. Roughly the size of Taiwan, the area has become the focus of a green-versus-green tussle pitting environmentalists trying to protect Indonesia's disappearing forests against a fast-growing alternative-energy business. Palm oil, a byproduct of the oil-palm tree such as those being planted in Riau, is used for cooking and as a food additive. Growing it has long been a big business in Southeast Asia. But it can also be used in the production of a relatively clean-burning alternative fuel: biodiesel. As oil prices have soared in recent years, Indonesian companies have been converting vast tracts of forests and peat bogs into palm-oil plantations to feed a rapidly expanding biodiesel industry; between 1995 and 2005, the amount of Indonesian land being used to grow oil palms increased by some 8.6 million acres (3.5 million hectares), more than doubling total plantation area, according to a recent report on the industry by Credit Suisse.
The biodiesel boom has a high environmental cost, however. Critics say it's contributing to global warming. Tropical forests help remove millions of tons of carbon dioxide from the atmosphere every year. Burning and clear-cutting not only eliminates one of the planet's crucial air-filtration systems, the process also releases even more carbon dioxide into the air, in smoke or as gases released during the decomposition of forest waste. Annual clearing of Indonesia's carbon-rich peatlands alone releases some 1.8 billion tons of greenhouse gases, according to a Greenpeace report. Indonesia is the world's third largest emitter of greenhouse gases behind the U.S. and China, says the World Bank. "We liken what's going on [in Indonesia] to pouring petrol on a fire," says Martin Baker, a Hong Kong–based communications officer for Greenpeace International. "It's completely ridiculous to produce green fuels from places like this."
It doesn't seem so ridiculous to poor countries like Indonesia, where leaders are torn between the need to develop the country's natural resources and increasing international pressure to preserve remaining forests. This dilemma is expected to be a hot topic this month at a U.N.-led conference on climate change in Bali, where representatives from 189 nations are gathering to negotiate a set of environmental rules to succeed the Kyoto protocols, the main provisions of which expire in 2012.
With 20% of the world's emissions coming from carbon released into the atmosphere via deforestation, one of the more controversial ideas to be floated at the conference will likely be a proposal to create an international carbon-trading system that would, in effect, allow countries such as Indonesia to be paid for not cutting down their forests. Although details have yet to be hammered out, the concept is similar to a European Union carbon-trading system that sets limits on greenhouse-gas emissions, allowing companies exceeding those limits to buy "credits" from companies that produce less than their fair share of pollutants. Thus, heavy polluters are penalized (they have to pay for credits to stay within the cap), while greener groups are rewarded (they get paid for being under the cap), and the continent as a whole meets its emission targets.
Climate change and economic growth: are they in conflict? I like to think that they need not be, but the technological capabilities which minimize this conflict are largely not in place yet for advanced countries such as Japan, Italy, and Spain, let alone for LDCs. Those meeting in Bali will have a tough time hashing out a deal. However, there are few issue with more pressing global importance than this one. We'll see how things pan out soon. Bali beckons.
