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Post-2012 Kyoto – One Tonne of Carbon Today Is More Valuable Than One Tonne Tomorrow

In a global effort to drastically reduce worldwide CO2 emissions, carbon trading is becoming increasingly popular. Nations which signed the Kyoto Protocol agreed to specific limits, or “caps,” on how much carbon they can emit a year. For those who cannot stay under the cap, they must buy carbon credits from others or face stiff penalties. One of the most popular ways for companies to earn carbon credits is to invest in Clean Development Mechanism or CDM projects, which allow entities to earn credits by reducing carbon emissions in a developing country. The global carbon market declined in 2010 to $142 billion because of uncertainty about post-2012. But since confirmation of second commitment period, new market projections should go up again, at least until 2017 Last December, it was decided that Kyoto and its CDM program will continue for a second commitment period through 2017and perhaps through 2020. However, it is unclear if there will be new restrictions on Certified Emission Reductions, or CERs. CERs are one of the most valuable types of carbon credit, since the credits must meet a rigorous set of standards. One tonne of CO2 is equivalent to a CER. CERs can definitely be transferred from the first to the second commitment period, but they should not be allowed to transfer the other way around. CERs from the second commitment period should not be transferable to meet targets of the first commitment period because greenhouse gas emissions are cumulative. In other words, reducing the same amount of emissions today has a much greater overall effect than reducing the emissions tomorrow. Therefore, targets from the first commitment period should have to be met using CERs from the first commitment period. If the UNFCCC takes this into consideration, 2012 would be the last chance for many countries to earn CERs for the first commitment period from CDM projects. This is because CERs can be issued for emissions reductions that actually take place after January 1, 2013, as long as the projects and reductions are validated before then. Countries which have already met emissions reductions targets could earn valuable CERs in 2012 too, and watch their market value go up once we enter 2013. In 2012, the number of proposals for CDM projects has already soared because of possible restrictions on CERs in the near future—250 proposals in February alone. Many European countries should be on the look-out for CDM projects which have a precedent and can be quickly implemented. One example is Municipal Solid Waste Incineration projects. These waste-to-energy projects can earn CERs for reducing CO2 by offsetting existing diesel and coal sources of power and reducing methane from anaerobic processes that otherwise happen in a landfill. Regardless of the whether or not CERs are backwards transferable, the price of CERs is expected to increase significantly. Although the Kyoto Protocol has not halted global CO2 concentration from increasing, CDM has been an important tool for generating new sources of revenue and helping countries grow. CDM has provided an incentive for technology and information transfer between developed and developing countries. Developing countries get clean-tech technology, while developed countries get valuable CERs which can be bought or sold on the market. The Kyoto Protocol is the most influential international CO2 regulation law to date. It essentially outlines a “cap and trade” framework for reducing emissions. Most countries have agreed to a second commitment period post-2012, except for Canada, Japan, and Russia. Thus, there is still a growing concern as to whether there will be a successful replacement after the second commitment period ends.

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