Asia’s powerhouse economies are turning cautious on national plans to price emissions and instead pursuing incremental steps that could delay a global carbon offset market.
Pressures from business and uncertainty over the shape of a U.N. climate pact mean the region will be reluctant to impose steep carbon costs while competitors such as the United States struggle to take action on emissions caps.
Asia is opening doors to trade carbon or energy efficiency certificates and promoting investment in renewables at the local level, which analysts say in a positive development though not ideal.
“Once countries go down their own unilateral road, it becomes harder to coordinate,” Divya Reddy, energy analyst for the Eurasia Group, a global political risk consultancy, told Reuters in an email.
“Overall, I would say the developments are a small positive for global mitigation efforts but a likely setback for a global offset market.”
Nations also see the clean-tech sector as a potentially huge new market, with conglomerates such as South Korea’s Samsung and LG Group pledging to invest about $80 billion in clean technologies over the next decade, according to Eurasia Group.
Beijing may also outline market-based steps for emissions trading and top coal exporter Australia has pledged to introduce a price on carbon this year.
But pushback from businesses fearing higher costs has delayed efforts in Japan and South Korea.
Standards
Different offset standards in Asia and outside, for example, in California, which is pushing ahead with its own carbon trading scheme from 2012, create global coordination problems, analysts say.
“The Californians are designing offsets for their program which are completely different from the ones the Australians will accept,” Martijn Wilder, global head of Baker & McKenzie’s climate practice, told Reuters from Sydney.
“So while people had envisaged having a global market, with global offsets traded across borders, it’s going to be a lot harder to harmonize that.”
Japan is developing its own bilateral offset program to encourage Japanese firms to invest in clean-energy programs in poorer nations to generate carbon credits for trading at home.
“The challenge occurs if those countries wish to participate in the carbon market internationally,” said Jennifer Morgan, director of the climate and energy program at the World Resources Institute in Washington.
“If so, then international accounting standards are needed to ensure that all credits are robust and not ‘junk credits’.”
Last month’s U.N. climate talks in Cancun in Mexico put the troubled negotiations back on track after talks in Copenhagen in late 2009 ended in acrimony.
But negotiators left the hard decisions on the final size of pledged emissions cuts by nations for future talks and also left unclear the design of an eventual global carbon trading scheme.
The future
The potential value of carbon market is huge in a region that contains three of the world’s top emitters: China, India and Japan.
Europe’s scheme is valued at about $100 billion in 2010 and trading of the closely connected market under the U.N.’s Kyoto Protocol is worth about $20 billion.
“There is a genuine belief in China that a low-carbon future is where it is at — that this is where there are going to be markets in the future, this is how to deal with energy security and pollution issues and provide high-value added jobs,” said Mark Kenber, deputy CEO of advisory firm The Climate Group.
But according to a global survey of steel and cement executives late last year by consultancy Accenture, many executives expressed fears that unconnected carbon policies could push polluting industries to shift to nations with no carbon limits.
Called leakage, this has led the United States and Europe to threaten to impose carbon tariffs in future on goods from nations that don’t have similar carbon limits.
“We should start looking at sector-by-sector solutions that tie in together,” Mauricio Bermudez-Neubauer, director, Carbon Markets, for Accenture told Reuters in an interview from London.
“It’s about working together so that you deal with the incentive of leakage by recognizing that international trade is an important part of the picture.”
He also pointed to the possibility of Chinese emissions trading steps eventually linking up with Europe.
“If they do move forward into a more robust emissions trading system, we could see the Chinese and European markets linking up. That’s something that could definitely happen in the next five to 10 years,” he said.
