Missed emissions goals add up to ¥4.4 trillion penalty

by Alex Morales and Jeremy Van Loon

Bloomberg

Twenty nations including Japan, Italy and Australia may be releasing more greenhouse gas pollution than they agreed to under the Kyoto Protocol.

As a penalty for missing their goals under the treaty, the nations are required to buy permits for every excess ton of carbon dioxide released through 2012. That will total 2.3 billion permits for the 20 nations, according estimates by New Carbon Finance, a research firm in London.

The potential penalty — 36 billion euro, or about ¥4.4 trillion, based on current permit prices — and the fact that only a minority of 37 Kyoto signatory nations may meet their pledges, bode poorly for international efforts to limit global warming.

“This shows there’s a lot more interest in promising stuff than actually keeping those promises,” Bjorn Lomborg, author of the book “The Skeptical Environmentalist,” said in a telephone interview from Copenhagen. “What you should be doing is investing in research and development to make much more dramatic emissions cuts much cheaper in the future.”

This week, the United Nations will publish a report on emissions data for 2006, compiling figures from national reports already released. Analysts have been using that data to estimate emissions for Kyoto’s 2008-2012 measurement period because a nation’s carbon dioxide output from factories, power plants and vehicles varies little year to year. It takes about 10 years, for example, to build a low emissions nuclear plant to replace several dirtier coal fired power stations.

Kyoto’s binding targets are a cornerstone in the international effort to limit global warming. The United States is the only developed nation not to ratify the pact.

Countries that are unable to meet targets must buy permits from nations that have a surplus. The government must pay the bill, and some, including Italy and Spain, are requiring industry to share in the costs.

Alternatively, nations may buy credits representing greenhouse gas reductions made abroad through investments in clean energy and forestry projects. This comes at a cost. U.N. Certified Emission Reduction credits, or CERs, which double as a Kyoto permit, were trading Monday at 15.80 euro for a 2008 contract.

The U.K., Sweden and several Eastern European nations are headed to meet their Kyoto obligations, according to carbon analysts. Others are set to miss by a wide margin, with Canada, Japan, Italy and Spain the worst transgressors.

Canada, facing the biggest emissions overshoot, has already said it won’t meet its Kyoto target, even by buying permits. It wasn’t included in New Carbon Finance’s forecast.

In Italy’s case, “It’s obvious the goals are not possible,” Corrado Clini said at an energy conference Monday in Rome. Italy will need 421 million permits over the five-year period, and Spain will need 405 million, the research firm said. That would cost each country more than 6 billion euro, using the current price of CERs, though both governments have said they may share the costs with local industry.

Point Carbon, an Oslo-based emissions market analysis company, estimates Italy will need 325 million permits and Spain 395 million.

Italian government and corporate officials are increasingly criticizing the Mediterranean nation’s looming emissions costs. Kyoto is “pure folly,” Paolo Scaroni, chief executive of Eni SpA, the nation’s largest oil company, said Nov. 10.

Italy is among countries that may go the Canadian route of choosing not to buy the permits they need to meet their targets, said Steven Knell, a London-based energy analyst at the economic consulting and research firm Global Insight Inc.

“It is unlikely that Italy would formally drop out of the Kyoto. However, noncompliance is a distinct possibility,” Knell said. “The cases of noncompliance may well pile up as many states are well off the mark.”

Italy’s Clini said the government and industry would purchase the permits together and not withdraw from the treaty. “We won’t pull out of Kyoto,” Clini said. “At this point, we’re in it.”

Australia, which only ratified Kyoto in 2007, will need credits to cover 20.6 million tons, at an estimated cost of 325 million euro, based on the CER price. Japan, which New Carbon Finance predicts will need 587 million credits, says new energy efficiency policies will help the nation meet its target.

“We are going to strengthen the energy efficiency standard for buildings and factories,” Hiroaki Takiguchi, director of Japan’s office of international strategy on climate change, said Oct. 28. “We are promoting renewable energy such as solar, wind.”

Improved energy policies mean Japan will only need 100 million credits, or less than one-fifth of New Carbon Finance’s estimate, over the five-year period, Takiguchi said.

“More and more countries are improving energy efficiency and promoting alternative fuels,” said Claudia Kemfert, head of energy at the DIW economic research institute in Berlin. “The fear about how much of a burden this will be is exaggerated.”

The U.N. Framework Convention on Climate Change, which guided the Kyoto talks, aims to negotiate a new treaty for the post-2012 period at a meeting next year in Copenhagen. Failure by countries to meet their Kyoto targets suggests there is no point in agreeing to a new deal, Lomborg said.

“It questions the whole idea of getting together in Copenhagen next year and making even more ambitious promises when we haven’t even been able to fulfill our promises so far,” said Lomborg, an economist and director of the Copenhagen Consensus Center, an economic advisory body.