ECO 6, Bonn 2011, English Version
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Tag: Ukraine
Ukraine’s AAU ‘Black Hole’
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While it has long been known that ‘black holes’ suck in light, physicists are still debating where it goes. Similarly, it seems Ukraine sucks in money from carbon trading and the government is having trouble finding where that has all gone. For the last two months, Ukraine has actively searched for 320 million Euros it received from selling hot air AAUs to Japan and Spain for emission reduction projects. The investigation is still ongoing, but Ukrainian President Victor Yanukovich has already announced, ‘the money was stolen by the previous Government’. Whatever the truth may be, the current government has confirmed to Ukrainian NGOs that, so far, not a single project was financed from these funds. Ukraine got the money under the international emissions trading mechanism by selling 30 million tonnes of hot air credits to Japan in the spring of 2009 and a further 3 million credits to Spain. Although Ukraine claims it has set up a Green Investment Scheme regulation to prove that money goes only to emissions reductions projects in a transparent and efficient way, in reality there is no access to information on project selection procedures and the subsequent use of the money. There is also a big scandal in Ukraine about a proposed AAU trading contract between the Ukrainian Government and what appears to be a New Zealand limited partnership, Tawhaki International LP, involving 50 million AAUs. According to a media investigation of this deal, the owners of the company are Ukrainian citizens, one of whom is a former UNFCCC negotiator. ECO thinks it outrageous that Ukraine still insists on the right to bank all the unused AAUs from the first commitment period into the future, given that it seems unable to properly regulate its carbon trading or ‘green’ the projects. To make things worse, their post-2012 target includes – you guessed it – even more hot air. Our message to Ukraine is: the UNFCCC is not the place to cheat. It is the place for you to help solve the global climate crisis! The Ukrainian NGO Working Group on Climate Change has urged all Annex I parties not to buy any more hot air from Ukraine until it reviews its national regulations and assures the money is used in a transparent and efficient way. Under the current scheme neither the population nor the economy, and certainly not the climate, will see any benefit. Hot air trading creates another kind of black hole too – sucking away the will of Annex I countries to actually cut emissions. A new AAU surplus must be avoided in the next Kyoto Protocol commitment period. Reduction targets for any Annex 1 country – not only those presently owning surplus AAUs like Russia and Ukraine – must be substantively lower than current baseline emission estimates. As for the AAU surplus, carryover between the first and second commitment periods could have the following legally binding restrictions:
- AAU surplus may be used domestically in surplus holding countries for compliance in the next commitment period, but subject to a dynamic discount factor.
- The discount factor must be set so that no more than 10-20% of the annual average level of first commitment period emissions is carried over in countries with an AAU surplus.
- An annual quantified limit on selling off carried-over AAUs has to be agreed, and legal provisions should prevent the laundering of first commitment period AAUs via the sale of second commitment period AAUs.
- AAUs must not be used at all for compliance in domestic cap and trade systems in Annex I countries.
- Surplus-holding countries should commit to climate friendly investment of the revenues from AAU surplus selling through transparent and internationally monitored Green Investment Schemes and/or to funds supporting developing country Parties. This can be legally enshrined in a post 2012 agreement.
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Banking of AAU Surpluses Considered Harmful
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The unrest in Ukraine is not the first instance of controversy over the use of AAUs. A recent story involves Hungary, which sold nearly 2 million CERs to a Hong Kong firm that had already been used for compliance under the EU ETS. Instead of retiring CERs from its registry when companies surrendered them, Hungary retired some of its large surplus of AAUs instead, so that it could re-sell the CERs. This is not itself illegal and is a more attractive option than directly selling AAUs, as CERs fetch slightly more money and are encumbered by fewer restrictions on the revenue from their sale. However, if practised on a large scale, such laundering risks seriously undermining the carbon price in the EU ETS through contamination of the scheme with cheap hot air AAUs, which also have lower environmental integrity than CERs. Decreasing the carbon price in this way will in turn lead to less domestic emission reductions in Europe. To avoid this, the EU’s 27 Member States have agreed not to sell used CERs, but the practice is proving difficult to track. Other stories abound. In late 2009, Environment Minister Maciej Nowicki of Poland resigned amid press reports of a disagreement with the Prime Minister over the use of revenue from selling AAUs worth 25 million euros to Spain. Ironically, Nowicki acted correctly, allocating the cash to Green Investment Scheme-backed projects, as Polish law requires. But leaked reports of a meeting, later denied by the government, alleged that the Prime Minister objected to this. Meanwhile the Slovakian government saw three environment ministers lose their jobs during 2009 in relation to an opaque deal with a US-based company. You get the picture. ECO simply offers all this as further evidence as to why no banking of AAU surpluses should be allowed.
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