United Nations climate negotiations in Durban, South Africa concluded on Sunday with agreements to move forward with international efforts to reduce concentrations of greenhouse gas emissions.
The centerpiece of the talks was an agreement to work towards a new international climate treaty encompassing major developing economies, such as China, India, and Brazil, as well as the developed nations currently obligated under the Kyoto Protocol. The countries also agreed to extend the existing Kyoto Protocol until at least 2017, as they work to craft the successor treaty. Important progress was also made in the Clean Development Mechanism (CDM), setting up the Green Climate Fund, and confirming a role for the private sector in REDD.
Impact on Global Carbon Markets
- The decisions made in Durban will have little short-term impact on the predominant carbon market, the European Union’s Emissions Trading Scheme (EU ETS), which is currently setting rules for its third phase to run from 2013 to 2020.
- Durban will not change the near-term demand picture in the EU. If anything, the result of the negotiations should keep EU policy makers on track to implement Phase III, although it may revise an EU-wide debate on increasing the reduction target to 30% by 2020 from the current target of 20%. Should the EU decide to extend its target to 30%, this may result in a bullish price movement during the 2013-2020 phase.
- Long-term, the agreement in Durban sets in motion a process to create by 2015 a new climate treaty for implementation from 2020. The EU was the biggest driver of this policy, and it provides more certainty of the EU ETS extending beyond 2020. Importantly, developed and developing nations will take post-2020 caps. The caps will be set by each nation as “agreed outcomes with legal force.” The U.S., which is not party to the Kyoto Protocol, is committed to this process. So are major developing nations such as China, India, and Brazil.
- The decision to extend the Kyoto Protocol to either 2017 or 2020 also sets aside an underlying debate on whether the CDM can or will continue after 2012, when the treaty was set to expire. The CDM will continue to generate offsets for use in compliance in the EU ETS, but unrelated to Durban negotiations are the EU’s restrictions on the use of certified emission reductions (CERs) from the CDM. Restrictions remain on the types of credits that can be used and where they can be created.
- The negotiations also yielded progress on nationally appropriate mitigation actions (NAMAs). Nations approved the creation of a new registry to track NAMAs to record financial and technical support provided to developing countries by developed countries. This furthers momentum in the NAMA space and increases the potential for complimentary credit mechanisms alongside the CDM.
You will find more detailed insight on the market impacts of the Durban climate in analysis provided by the International Emissions Trading Association. For more information on the various agreements, check out the UN’s official site, as well as reports from Bloomberg and Reuters.
For more information on the carbon market impact from Durban or to transact in these markets, please contact our Carbon Markets teams in London (+44 207 264 4550), New York (+1 914 323 0265), San Francisco (+1 415 963 9137), and Beijing (+86 10 5811 1810).