Uncool carbon markets

Opinions are divided over whether the rather empty deal coming out of last week’s Copenhagen meeting is a good or a bad thing for US climate change legislation.

Some say that progress on the matter of monitoring China’s emissions intensity targets will help reassure moderate Democrats that a cap-and-trade bill won’t hurt American manufacturing. Others say the failure of the meeting to come up with binding emissions targets will make Congress less likely to pass it.

But one thing everyone is agreed on is that the process that brought about last week’s agreement has to change. The UN itself has said that it will look at how to streamline future negotiations, after a small number of countries known to include Venezuela, Bolivia and Sudan (Cuba and Nicaragua have also been mentioned)  prevented the accord brokered by China, the US, Brazil, India and South Africa from being formally approved at the UN meeting.

So who would be involved in this more streamlined process? The Major Economies Forum, as revived by the Obama administration, has been mentioned; as has the G20.

But a meeting of the biggest emitters certainly won’t appease Hugo Chavez, who insisted the Copenhagen process was undemocratic anyway.

And the smaller and poorer developing countries most vulnerable to the effects of climate change, such as Tuvalu and other island nations, might not feel particularly reassured unless a very strong commitment emerged.

And the implications for an international carbon market are concerning – Andreas Arvanitakis from Point Carbon said the likelihood of such a market forming now looks less likely, “with a patchwork of regional price signals emerging instead”.

In fact carbon markets are looking far from healthy right now, with Senator John Kerry last week suggesting a cap-and-trade-free version of the Kerry-Boxer bill could be introduced. The focus would instead be on renewable energy mandates.

That dream of a fungible international carbon market is looking further and further away.

Meanwhile energy companies in Britain are complaining that a lower carbon price means higher energy prices in the medium-term, as it removes an incentive to invest in sources such as nuclear. The UK has its own issues with energy supply, but it’s an interesting point that the lower carbon prices brought about by the weak Copenhagen outcome could have ramifications for energy security in other countries, too.

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