Kevin Rudd, Australia's new prime minister, says he will immediately move to ratify the Kyoto Protocol, leaving the United States standing proudly alone as the only developed nation in the world still refusing to commit to reducing its emissions of greenhouse gases.
The news is timely, and not just because the latest report from the World Meteorological Organization documented a record high for atmospheric concentrations of carbon dioxide in 2006 and Australians are the biggest per capita generators of greenhouse gases. Coming up next week is the United Nation's annual climate convention in Bali, Indonesia, where the pressure will be on for a new agreement on emissions reductions designed to kick in in 2012, when the Kyoto Protocol's "first commitment period" expires. Kevin Rudd plans to attend.
The hope is that developed and developing nations will commit to even deeper cuts, and thus ensure the future health of the currently burgeoning global market for carbon emission reduction credits. Without a new agreement, the market for credits could collapse, warn some observers.
Right now, the market for carbon emission credits is estimated to be worth around $70 billion annually, and has proven popular enough with the global financial community that a full-fledged derivatives trading ecology is emerging around it. Whether or not that news should give us pause will be the grist for future posts. Certainly, the currently existing cap-and-trade system is far from perfect. The Financial Times published a fascinating story on Thanksgiving reporting how Japan wants to meet its own Kyoto commitments by buying cheap emissions credits from countries such as Hungary, the Czech Republic and Poland. The problem: These credits, referred to as "assigned amount units" (AAUs), don't reflect real success in cutting emissions, because they are a reflection of the reduction in industrial output that followed the widespread economic collapse experienced in the Eastern bloc after the dissolution of the Soviet Union. To make a real difference, Japan would need to either cut its own emissions or purchase gold standard Certified Emission Reduction (CER) credits generated by projects that satisfy the requirements of the Clean Development Mechanism.
But Japan doesn't want to pay the "crazy prices" that CERs cost. So it's looking for the easy way out.
Ideally, a new, post-2012 Kyoto agreement would reduce such opportunities to game the system. "Crazy prices" for CERs should be a good thing. In theory, if CERs continued to command high prices there would be a market incentive to invest in projects that could generate more such credits. A thriving CER market could dramatically influence global energy economics. For example, a recent report from the World Agroforestry Center argues that in Indonesia, investors could generate higher returns from cutting emissions and selling the resulting credits than they would from converting rain forests to palm oil plantations and selling the resulting biofuel.
That kind of cost calculus should be part of every industrial economy decision-making process everywhere. And maybe it will be, if Kevin Rudd's victory, and Australia's Kyoto change of heart, prefigures bigger and better things elsewhere.