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2012: The End of carbon markets? New mitigation trends

On January 17th, 2012, in La Moneda Palace Cultural Centre, the seminar "2012: The end of carbon markets? New mitigation trends", organized by Chile Menos CO2 was held and sponsored by the Ministry of Environment and the Technology Transfer Foundation, UNTEC.

The seminar discussed the results of COP17 (17^th Conference of Parties) of the UNFCCC (United Nations Framework Conference on Climate Change) that was held during December 2011, the state and trends of carbon markets, the position and strategy of the Chilean government on climate change, and the challenges and opportunities for the private sector during this period of transition.

The exhibitors, of national and international organizations, included representatives of the UNFCCC, the United Nations Development Program (UNDP) in Chile, the Ministry of Environment, InnovaChile and the company AcciónRSE.

 

The most distinguished exhibitor was Niclas Svenningsen, director of the Sustainable Development Strategy and Policy Program of the UNFCCC. He spoke in detail about the results of COP17 which was held in Durban, South Africa at the end of last year, carbon market trends and forecasts.

 

COP17's purpose was to determine a global strategy and mechanisms of action to face climate change after the Kyoto Protocol (KP), which is scheduled to close during 2012. The results of the negotiations were mixed but in general ambiguous. There two concrete decisions: 1) there will be a second period of the KP which will terminate in 2017 or 2020 (the exact date will be decided later this year); and 2) all countries will participate in the KP in the same manner, irrespective of their level of development. In addition, there will be new mechanisms that will run alongside the Clean Development Mechanism (CDM) such as the New Market-Based Mechanism, and the Durban Platform for Enhanced Action will replace the KP in 2020. The Durban Platform, unlike its predecesor, will be legally binding for all Parties. It is forecasted that the Parties will negotiate the details and mechanisms of the Durban Platform by 2015, which will afterwards be implemented in 2020.

 

During the past year, while COP17 was approaching, carbon prices suffered enormous downfalls; CERs (Certified Emissions Reductions) lost 60% of their value during the year. This was a result of a number of factors, one of which was uncertainty about COP17 but more importantly a drop in demand in the carbon market due to macroeconomic problems in the European Union, where a grand majority of CDM commerce takes place (80% of CDM buyers are from the EU). There is uncertainty, moreover, about new European policies that will come into play which will affect carbon prices. However, there is the possibility that China, which presently supplies a significant proportion of CDM proyects, will implement a domestic carbon market and thus internalize these projects which will cause a strong drop in the supply of CDM projects on an international level and of course a rise in carbon prices.

To conclude, Mr. Svenningsen highlighted the viability of carbon markets, the importance of domestic markets and the trend toward their integration on a regional level. Carbon prices will continue to show instability given all the uncertainty over international agreements and national policies, however we can be sure that these mechanisms, in some form, will continue into the future.

The Subsecretary of Environment, Ricardo Irarrazabal, spoke about the implications of COP17 for Chile and the government's strategy in response. Considering the first point, he highlighted that the opportunity of developing CDM projects in Chile effectively continues, but the demand is weak due to the state of finances in the EU and the non-participation of Canada and Japan in the second period of the KP. It seems to him that, until 2020, this decade will be a lost decade while the countries of the world wait for the implementation of the Durban Platform and try to fulfill their voluntary climate commitments. Chile's strategy is to fulfill the commitment it had made last year to deviate from the Businss As Usual emissions baseline by 20% by 2020. Mr. Irarrazabal presented a number of initiatives the government is taking to combat climate change with international support; the inclusión of Chile as a member of the OECD means that the country won't be able to count with so much support in the future.

More information about the seminar and to access the presentations, follow the link (in Spanish): http://www.chile-co2.cl/seminario-%e2%80%9c2012-%c2%bffin-del-mercado-del-carbono-nuevas-tendencias-para-la-mitigacion%e2%80%9d/