Eastern Europe's windfall of carbon credits
Ahead of climate talks in Copenhagen, experts are focused on an unlikely legacy in post-Communist countries: A cache of carbon credits that could destabilize the market.
Wed, Nov 11, 2009 at 04:05 PM
WINDFALL: Rapid deindustrialization led to a surplus of carbon credits. (Photo: ZUMA Press)
Twenty years after the fall of the Berlin Wall, a surprising legacy in post-communist countries is this: a surplus of carbon emission credits in Central and Eastern Europe.
Indeed, a flood of emission credits from post-Communist countries is rocking the carbon market, according to a Greenwire story published in the New York Times. This year, the price of a ton of carbon in Europe’s cap-and-trade system dropped by more than a euro thanks to sales of emission credits from countries like the Czech Republic, Latvia and Ukraine.
And take this for example: To date, roughly 147 million tons of credits were sold worldwide under the Kyoto Protocol, according to Point Carbon. But Ukraine alone is negotiating the sale of 450 million more tons to Japanese firms. "It's a hot potato that no one wants to touch," said Peter Zapfel, an official at the environment directorate of the European Commission. Today, there are about 10 billion excess credits that could be cashed in.
To be sure, the problem has been escalating for years. The main problem for regulators is that countries that gobble up carbon credits could meet their emission requirements without actually reducing carbon output. Japan is a prime example of this concern; in the past fiscal year, Japanese countries purchased $1 billion worth of carbon credits and some have been “hot air” credits, as the surplus of credits is sometimes called.
Now, European leaders want to address the excess credits at the United Nations climate talks in December in Copenhagen.
In large part, the decline of CO2 emissions is a legacy realized after the fall of the Berlin Wall. As the gross inefficiencies in state-owned industries were alleviated, there were widespread efficiency upgrades and plant closures. Credits built up thanks to a gap resulting from rapid deindustrialization and the amount of emission credits given to some countries during the last round of climate talks.
Negotiators at the time wanted to “keep countries that really had no interest in environmental issues at the time, you wanted to keep them in the game,” said Thomas Legge, a climate and energy expert at the German Marshall Fund.
As a result, over the past 20 years, Poland’s greenhouse gas emissions dropped 30 percent, Bulgaria’s dropped 43.3 percent, Ukraine’s 52.9 percent and Latvia’s 54.7 percent. Meanwhile, countries like Spain, Portugal and Ireland saw emissions rise.
Today, the European Union is meeting its emissions commitments because of the contribution of new member states in Central and Eastern Europe. In fact, a report by a British advocacy group called the Sandbag Climate Campaign found that West European emissions dropped 4.3 percent compared to 1990, a drop that more than doubles when output from post-Communist countries are incorporated.
Case in point: Germany set a high bar for itself during Kyoto negotiations, promising to reduce emissions by 21 percent by 2012. By 2000, it already reported a 17 percent reduction, half of which could be attributed to East Germany’s decline.
But without such concerns, the market would crash, observers noted.
"My prediction is a lot of the hot air credits will go unused," Legge said. "If there was really an open market for them, the price would drop to zero."