LONDON (Reuters) - Emissions trading schemes in emerging economies will not be mature enough to link to the EU’s carbon market before 2020, making it even more important for global climate talks to extend and improve U.N. carbon offset schemes, a study said.
The report, published by Germany’s Wuppertal Institute for Climate, Environment and Energy this month, examined plans for domestic emissions schemes in Brazil, China, India, Kazakhstan, Mexico and South Korea.
“It can be assumed that at least until 2020, climate policy even in many of the rapidly industrialising developing countries will mainly revolve around non-emissions trading scheme policies and measures,” the study said.
“International climate cooperation should therefore not neglect improving the CDM (Clean Development Mechanism) and supporting transformational policies and measures through fund-based instruments,” it added.
As the next round of UN climate talks in Panama approach in October, the EU is considering backing an extension to the Kyoto Protocol which expires in 2012 — if other key emitters commit to stronger emissions targets, which is very unlikely.
An extension could boost investor confidence in Kyoto’s CDM, which generates carbon offsets through investment in carbon-cutting technologies in emerging economies.
South Korea and Kazakhstan have the most advanced plans for national emissions trading among emerging economies, but some design elements are unclear and it is uncertain when these laws might be passed, the report said.
The creation of a Chinese nation-wide scheme by 2015 is a distinct prospect but it is unclear how various pilot schemes will be converged in a short period of time.
It is also unclear how large emerging schemes will become and how much market impact they will have, except for South Korea where the system would be around one fifth of the size of the EU’s $120 billion emissions trading scheme (EU ETS).
Other emerging schemes will not be based on emissions, such as India’s energy efficiency and renewable energy trading system, and may not be compatible with a global carbon market.
Even in the EU, which launched its ETS in 2005, it took five years to “fast-track” the scheme from paper to implementation.
The EU Commission hoped an OECD-wide carbon market could emerge by as early as 2015 and that some emerging economies would be added by 2020.
Speculators piled into the EU ETS in its earlier days, expecting the United States to implement national emissions trading legislation which could be linked to the EU scheme, eventually creating a trillion dollar market.
Many of them exited the EU ETS when this failed to materialise.
Reporting by Nina Chestney; Editing by Alison Birrane