Kyoto Commitment Period Research Articles

Lurking in the Shadows: The Impact of Emissions Target Setting on Carbon Pricing and Environmental Efficiency

This paper examines the impact of Kyoto Protocol target setting regime on environmental efficiency and carbon shadow pricing. We extract shadow price estimates and efficiency scores from a comprehensive dataset of 125 countries in the first Kyoto commitment period (2008-2012) using a stochastic non-parametric estimation framework. We estimate CO2 marginal abatement costs which: are significantly higher for target setting countries; increase over the sample period, and are an order of magnitude greater than the prevailing emissions pricing mechanisms. Our findings provide insights into the consequences of policies to curb unwanted by-products in a regulated system and shed light on the price efficiency of carbon markets.

From Kyoto to Paris: the European Union's contribution to a new world climate order

The European Union (EU)’s climate policy is closely linked to its commitments under the international regime of the United Nations (UN). The Union was a party to the Kyoto Protocol; it contributed to its ratification and largely surpassed its mitigation obligations during the first commitment period (2008-2012). It is currently one of the few developed parties with voluntary mitigation obligations for the second Kyoto commitment period (2013-2020), whose scope and contents draw critically on the EU 2020 climate-energy package. While implementing this binding framework, the EU is giving legal contents to the 2030 climate-energy package as a major contribution to the new international climate regime under the Paris Agreement, in whose design and adoption the Union also played a key role. Recent policies and other proposals now in prospect are intended to transform the EU into a competitive and sustainable economy by 2050. The new measures also signal the way for further collective action beyond 2025 under the Paris Agreement.

From Kyoto to Paris: the European Union's contribution to a new world climate order

The European Union (EU)’s climate policy is closely linked to its commitments under the international regime of the United Nations (UN). The Union was a party to the Kyoto Protocol; it contributed to its ratification and largely surpassed its mitigation obligations during the first commitment period (2008-2012). It is currently one of the few developed parties with voluntary mitigation obligations for the second Kyoto commitment period (2013-2020), whose scope and contents draw critically on the EU 2020 climate-energy package. While implementing this binding framework, the EU is giving legal contents to the 2030 climate-energy package as a major contribution to the new international climate regime under the Paris Agreement, in whose design and adoption the Union also played a key role. Recent policies and other proposals now in prospect are intended to transform the EU into a competitive and sustainable economy by 2050. The new measures also signal the way for further collective action beyond 2025 under the Paris Agreement.

Convenience Yields for Co2 Emission Allowance Futures Contracts

In January 2005 the EU-wide CO2 emissions trading system (EU-ETS) has formally entered into operation. Within the new trading system, the right to emit a particular amount of CO2 becomes a tradable commodity - called EU Allowances (EUAs) - and affected companies, traders and investors will face new strategic challenges. In this paper we investigate the nature of convenience yields for CO2 emission allowance futures. We conduct an empirical study on price behavior, volatility term structure and correlations in different CO2 EUA contracts. Our findings are that the market has changed from initial backwardation to contango with significant convenience yields in future contracts for the Kyoto commitment period starting in 2008. A high fraction of the yields can be explained by the price level and volatility of the spot prices. We conclude that the yields can be interpreted as market expectation on the price risk of CO2 emissions allowance prices and the uncertainty of EU allocation plans for the Kyoto period.

The New Zealand forestry sector's experience in providing carbon sequestration services under the New Zealand Emissions Trading Scheme, 2008 to 2012

The New Zealand government established the New Zealand Emissions Trading scheme (NZ ETS) as the primary mechanism for achieving New Zealand's Kyoto obligations between 2008 and 2012. The legislation made planted forests the first sector to participate in the NZ ETS, starting in 2008. At the same time, other schemes to encourage carbon sequestration through forestry were also implemented.The implementation of the NZ ETS has focussed on meeting New Zealand's international obligations between 2008 and 2012 at minimum cost, and there is little evidence it has led to any reduction in greenhouse gas emissions or investment in new planted forests in New Zealand. The NZ ETS has been most effective at facilitating the transfer of international (Kyoto compliant) carbon credits from emitters to the New Zealand government. These credits have been used to partially meet New Zealand's obligations for the first Kyoto commitment period, allowing other units to be carried over to meet obligations from 2013 to 2020.The paper shows that participation in the NZ ETS is unlikely to contribute a long-term positive impact on profitability of commercial forestry, and that the liabilities created through participation in the NZ ETS do not assist the development of the forestry sector in New Zealand. The paper suggests that the NZ ETS is not the correct policy instrument to encourage carbon sequestration by planted forests.

Convenience Yields and Risk Premiums in the EU‐ETS—Evidence from the Kyoto Commitment Period

AbstractWe examine convenience yields and risk premiums in the EU‐wide emissions trading scheme (EU‐ETS) during the first Kyoto commitment period (2008–2012). We find that the market has changed from initial backwardation to contango with significantly negative convenience yields in futures contracts. We further examine the impact of interest rate levels in the Eurozone, the increasing level of surplus allowances and banking, as well as returns, variance, or skewness in the EU‐ETS spot market. Our findings suggest that the drop in risk‐free rates during and after the financial crisis has impacted on the deviation from the cost‐of‐carry relationship for emission allowances (EUA) futures contracts. Our results also illustrate a negative relationship between convenience yields and the increasing level of inventory during the first Kyoto commitment period, providing an explanation for the high negative convenience yields. Finally, we find that market participants are willing to pay an additional risk premium in the futures market for a hedge against increased volatility in EUA prices. Overall, our results contribute to the literature on the determinants and empirical properties of convenience yields and risk premiums for this relatively new class of assets. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:587–611, 2016

Futures price dynamics of CO2 emission allowances

We analyze the pricing and lead–lag relationship between spot and futures prices of CO2 emission allowances in the EU emission trading scheme. We show that the cost-of-carry hypothesis between spot and futures prices holds for the trial period. In this period we focus on how fast a deviation from equilibrium due to shocks is restored. We derive testable restrictions on the loading coefficients and the short term dynamics within a vector error correction model. Previous studies in this field did not take into account the effects of lagged differences in the determination of the speed of adjustment. The results indicate that deviations from equilibrium are restored faster for the futures price series maturing in 2006 than for the futures price series maturing in 2007. Furthermore, we conduct an impulse response analysis using local projections with conditional confidence bands. Finally, we give an outlook for the Kyoto commitment period which is already running. In this time period so far we find that the cost-of-carry hypothesis does not hold.

The Relationship between Spot and Futures CO2 Emission Allowance Prices in the EU-ETS

In this paper we investigate the relationship between spot and futures prices within the EU-wide CO2 emissions trading scheme (EU-ETS). We conduct an empirical study on price behavior, volatility term structure and correlations in different CO2 EU Allowance (EUA) contracts during the pilot trading and the first Kyoto commitment period. We find that for the pilot trading period (2005-2007) the market was initially in backwardation, while after the news of sufficiently high allocations, both allowance prices and convenience yields approached zero. On the other hand, futures contracts referring to the Kyoto commitment period were less affected by the price drop. Considering spot and allowance futures prices during Phase II (2008-2012), we find that the market has changed from initial backwardation to contango with significant convenience yields in futures contracts. We attribute this deviation from the cost-of-carry relationship to three main factors: low interest rate levels in the Eurozone; market participants’ willingness to pay an additional premium for a hedge against rising prices in future periods, and, the increasing level of surplus allowances and banking during Phase II.

Carbon and livelihoods in Post-Kyoto: Assessing voluntary carbon markets

1. IntroductionThe first Kyoto commitment period ends in 2012 with no clearconsensus regarding post-Kyoto governance. There is nonethelessan increased recognition that efforts to adapt to climate change areas important as mitigation strategies (World Bank, 2010). Adaptationobjectivesbuildonlong-termeffortstorelatemorefullyclimatechangemitigation—embodied by the establishment of carbon markets—to theenhancement of adaptive capacity and sustainable development (Smitand Pilifosova, 2003). Ideally, carbon marketscan contribute toadapta-tion and mitigation objectives by reducing greenhouse gas emissionswhile also contributing to sustainable development outcomes; a win–win agenda that is explicitly represented in the dual-goals of theClean-Development Mechanism (CDM). Milder et al. (2010) estimatethat25to50 million low-income landstewardscouldbenefitfromcar-bon markets alone by 2030 especially if carbon projects invest in liveli-hood enhancing practices.Despite the rapid growth of carbon offsets over the past decade,sustainable development objectives for the developing world are lag-ging(Boydet al.,2009;Olsen,2007;SutterandParreno,2007).Toun-derstand the dynamics at play, I relate mitigation actions driven byland-based carbon projects to livelihood outcomes in the developingworld. I focus specifically on voluntary carbon markets (VCMs),situating them within the wider carbon governance system (i.e.CDM), because these markets have been at the forefront of newdevelopments in carbon governance facilitating for instance theadvent of reduced emissions for deforestation and degradation(REDD+) mechanisms. While carbon markets have the potential tofoster pro-poor growth and environmental conservation; in practicelinking carbon markets to livelihoods is greatly constrained by thecomplexity of socio-economic, political and environmental conditionson the ground as well as difficulty in building trust and linkages acrossscales.2. Voluntary carbon market within the wider regulatory contextof carbon financeThe Kyoto protocol (1997) was instrumental to the developmentof global carbon finance mechanisms including regulatory frame-works such as the CDM and parallel voluntary markets. These mar-kets support the trade of carbon offsets to reduce, sequester oravoid the emission of greenhouse gases globally. Despite their rapidgrowth during the past 7 years, carbon markets have slowed downdue to their vulnerability to global economic crises as well as abroader uncertainty relating to the fate of the Kyoto agreementpost-2012 (Linacre et al., 2011; Peters-Stanley et al., 2011). Whilethe total value of global carbonstabilized around$142 billion, the pri-mary CDM decreased by 50% since 2009 for a total value of 1.5 billion,less than 2005 when the Kyoto protocol was first implemented(Linacre et al., 2011: 9). Given these uncertainties, lessons learnedfrom the voluntary carbon will be extremely valuable to assess howcarbon markets may evolve.VCMs are considerably smaller than regulatory frameworks with0.1% of the value and 0.02% of the volume of the global carbon market(Peters-Stanley et al., 2011:11). Yet their impact on the trajectory ofcarbon markets is not negligible. In opposition to a declining CDM,131.2 MtCO2e were traded in 2010 for an overall value of 424 millionUSD—34% more than 2009 and even exceeding historic trends. 45% ofthese credits were land-based, and 29% were related to the burgeon-ing REDD carbon market (Peters-Stanley et al., 2011: 11). The volumeof VCMs even exceeded that of the primary CDM in 2010 (Fig. 1).The CDM was developed to reach a twofold agenda: reduce GHGemissions by facilitating the trade of carbon offsets between industri-alized countries that ratified the Kyoto protocol and the developingworld while simultaneously contributing to sustainable developmentin the host countries. While in theory synergies exist between thetwo objectives, in practice there are trade-offs between cost-efficient mitigation and sustainable development goals, which resultlimited sustainable development outcomes (Boyd et al., 2009; Olsen,2007; Sutter and Parreno, 2007). Sustainable development efforts

Liquidity Effects on Carbon Financial Instruments in the EU Emissions Trading Scheme: New Evidence from the Kyoto Commitment Phase

The EU Emissions Trading Scheme (EU-ETS), the major policy tool of the EU for achieving its Kyoto target, is the largest pollution permit market in the world. Following the lessons learned from the trial phase (2005-2007), new measures were adopted for the Kyoto commitment period (2008-2012) in order to enhance market quality, thereby reducing emissions. This study explores liquidity effects after the introduction of the new regime of rules for Kyoto commitment period. It finds evidence of a sustained increase in the liquidity of the carbon permits as a result of the new trading rules. However, we also find evidence of reductions in liquidity following regulatory changes after the commencement of the current phase.

Harvested wood products accounting in the post Kyoto commitment period

An increase in the amount of harvested wood products (HWP) from sustainable forestry would help to reduce levels of atmospheric carbon. In the first commitment period of the Kyoto Protocol (2008–2012), this carbon stock effect of HWP is ignored, and forest harvesting is treated as an instantaneous emission of carbon dioxide. However, in the next commitment period of the United Nations Framework Convention on Climate Change from 2013, the carbon stock changes resulting from HWP will be taken into account in the national greenhouse gas inventories. The Japan Wood Research Society called for a roundtable conference of eight research societies, industrial associations, and nongovernmental organizations that are involved with wood utilization. At the conference, accounting approaches for HWP were discussed and a consensus was reached that the stock change approach should be adopted in the next commitment period.

Bringing the Copenhagen Global Climate Change Negotiations to Conclusion

In this article we discuss the global negotiations now underway and aimed at achieving new climate change mitigation and other arrangements after 2012 (the end of the Kyoto commitment period). These were initiated in Bali in December 2007 and are scheduled to conclude by the end of 2009 in Copenhagen. As such, this negotiation is effectively the second round in ongoing global negotiations on climate change and further rounds will almost certainly follow. We highlight both the vast scope and vagueness of the negotiating mandate, the many outstanding major issues to be accommodated between negotiating parties, the lack of a mechanism to force collective decision making in the negotiation, and their short time frame. The likely lack of compliance with prior Kyoto commitments by several OECD countries (some to a major degree), the effective absence in Kyoto of compliance/enforcement mechanisms, and growing linkage to non-climate change areas (principally trade) all further complicate the task of bringing the negotiation to conclusion. The major clearage we see that needs to be bridged in the negotiations is between OECD countries on the one hand, and lower wage, large population, rapidly growing countries (China, India, Russia, Brazil) on the other. (JEL codes: F33, F51, F53, Q54, Q56, P28)

Using Bus Rapid Transit to Mitigate Emissions of CO2 from Transport

This article investigates the role of bus rapid transit as a tool for mitigation of transport‐related carbon dioxide (CO2) emissions. We analyse a Quality Bus Corridor (QBC) implemented in Dublin, Ireland, in 1999 and estimate CO2 emissions associated with differing levels of bus priority for the period 1998–2003 and for the Kyoto commitment period (2008–12). Associated monetary values are established using CO2 prices from the European Union Emissions Trading Scheme. We find that, in the absence of a QBC, peak‐time emissions for our sample population would have been 50% higher than in the factual scenario. For the Kyoto commitment period, we find the median value of the policy implementation to be in the region of €650 000.

Bringing the Copenhagen Global Climate Change Negotiations to Conclusion

In this paper we discuss the global negotiations now underway and aimed at achieving new climate change mitigation and other arrangements after 2012 (the end of the Kyoto commitment period). These were initiated in Bali in December 2007 and are scheduled to conclude by the end of 2009 in Copenhagen. As such, this negotiation is effectively the second round in ongoing global negotiations on climate change and further rounds will almost certainly follow. We highlight both the vast scope and vagueness of the negotiating mandate, the many outstanding major issues to be accommodated between negotiating parties, the lack of a mechanism to force collective decision making in the negotiation, and their short time frame. The likely lack of compliance with prior Kyoto commitments by several OECD countries (some to a major degree), the effective absence in Kyoto of compliance/enforcement mechanisms, and growing linkage to non-climate change areas (principally trade) all further complicate the task of bringing the negotiation to conclusion. The major clearage we see that needs to be bridged in the negotiations is between OECD countries on the one hand, and lower wage, large population, rapidly growing countries (China, India, Russia, Brazil) on the other.

Convenience Yields for CO2 Emission Allowance Futures Contracts

In January 2005 the EU-wide CO2 emissions trading system (EU-ETS) has formally entered into operation.Within the new trading system, the right to emit a particular amount of CO2 becomes a tradable commodity - called EU Allowances (EUAs) - and affected companies, traders and investors will face new strategic challenges. In this paper we investigate the nature of convenience yields for CO2 emission allowance futures. We conduct an empirical study on price behavior, volatility term structure and correlations in different CO2 EUA contracts. Our findings are that the market has changed from initial backwardation to contango with significant convenience yields in future contracts for the Kyoto commitment period starting in 2008. A high fraction of the yields can be explained by the price level and volatility of the spot prices. We conclude that the yields can be interpreted as market expectation on the price risk of CO2 emissions allowance prices and the uncertainty of EU allocation plans for the Kyoto period.

Regional simulation of long‐term organic carbon stock changes in cropland soils using the DNDC model: 2. Scenario analysis of management options

AbstractThe development of successful agricultural policies in response to the Kyoto Protocol is aided by the identification of regions where the effects of soil organic carbon (SOC) sequestration measures can be maximized. We describe a modelling approach which incorporates a spatial analysis of the results from regional simulation under different management alternatives. SOC stock changes in Flemish cropland soils, simulated with the DNDC model, were previously fitted to a large data set of SOC measurements for the period 1990–2000. Using the results of this study, simulations with DNDC of SOC stock changes during the period 2006–2012 including the Kyoto commitment period were carried out at the community level for a business‐as‐usual (BAU) scenario and seven alternative agricultural management options for SOC sequestration. The baseline SOC stock decreased during that period by 0.15 t OC ha−1 year−1 compared with 0.48 t OC ha−1 year−1 in the 1990s. All alternative scenarios resulted in net SOC storage compared with the BAU scenario, but none of the individual scenarios were able to increase the average absolute SOC stock. Overall, spatial variability in SOC storage for the selected management options was strongly dependent on the current distribution of crops and associated management. The modelling approach used in this study provides a case study in regional scale modelling of SOC sequestration and is applicable to other regions in Europe with comparable intensive agriculture.

Russian exports of emission permits under the Kyoto Protocol: The interplay with non-competitive fuel markets

The paper analyses optimal strategies for a country that has market power in an international market for emission permits at the same time as a domestic fuel producer participates in a non-competitive fuel export market. In particular, the effects of coordinating fuel and permit exports are explored. We show that such coordination may either increase or reduce the optimal mark-up on permits, depending on the degree of substitution between alternative fuels. When the fuel market is oligopolistic, coordination of permit and fuel exports may lead to a strategic disadvantage in the fuel market, which makes such coordination unprofitable. However, illustrative numerical simulations suggest that Russia will benefit from coordinating its permit exports with its oil and gas exports during the Kyoto commitment period.

Russia at GHG Market

In the first Kyoto commitment period Russia could be the major supplier for the greenhouse gases (GHG) emissions market. Potential Russian supply depends on the ability of Russia to keep GHG emissions lower than the Kyoto target. In the literature there is no common understanding of the total trading potential of Russia at the international carbon market. In this paper we focus on CO2 emission, which constituted nearly 80%of Russian GHG emission. We compare different projections of Russian CO2emission and analyze the most important factors, which predetermine the CO2emission growth. In a transition economy these factors are: Gross Domestic Product(GDP) dynamic, changes of GDP structure, innovation activity, transformation of export-import flows and response to the market signals. The input-output macroeconomic model with the two different input-output tables representing old and new production technologies has been applied for the analysis to simulate technological innovations and structural changes in the Russian economy during transition period. The Russian supply at the international GHG market without forest sector may be up to 3 billion metric ton of CO2 equivalent. Earlier actions to reduce CO2 emission are critical to insure theRussiansupply at the international carbon market. With regard to the current status of the Russian capital market, the forward trading with OECD countries is only the possibility to raise initial investments to roll no-regret and low-cost GHG reduction. This paper discusses uncertainties of RussianCO2emission dynamics and analyzes the different incentives to lower the emission pathway.

Accounting for changes in soil carbon under the Kyoto Protocol: need for improved long‐term data sets to reduce uncertainty in model projections

Abstract. Soils can be used as a biospheric sink for carbon under Article 3.4 of the Kyoto Protocol and parties are able to use agricultural soil carbon sinks to contribute towards carbon emission reduction targets. This should be done ‘taking into account uncertainties, transparency in reporting, and verifiability’. Models are often tested against data sets of long‐term changes in soil organic carbon (SOC), but most data sets have only mean SOC values available at each sample date, with no estimates of error about the mean. We show that when using data sets that do not include estimates of error about the mean, it is not possible to reduce the error (root mean squared error) between modelled and measured values below 6.8–8.5%, even with site‐specific model calibration. Equivalent errors for model runs using regional default input values are 12–34%. Using error as an indicator of the certainty that can be attached to model projections, we show that a significant reduction in uncertainty is needed for Kyoto accounting. Uncertainties for modelling during the first Kyoto Commitment Period could be reduced by better replication of soil measurements at benchmark sites. This would allow model error to be separated from measurement error, which would allow more comprehensive model testing and, ultimately, more certainty to be attached to model predictions.

Implications of Linking National Emission Trading Schemes prior to the Start of the First Commitment Period of the Kyoto Protocol

After greenhouse gas emission trading on country level had been proposed by the Kyoto Protocol agreed on in 1997, a discussion on the introduction of national schemes with entities as participants ensued. This discussion also raised the question if and how such systems can be linked. We first discuss this issue with regard to technical feasibility and environmental integrity. We find that linking is generally not prevented due to technical reasons. Environmental integrity may, however, be endangered depending on the specific designs of the schemes to be linked. We then analyse the economic impact of linking national schemes. Even though linking national schemes can increase overall cost-efficiency this picture changes if systems are linked prior to the start of the first Kyoto commitment period. Seller and buyer may have different interests with regard to linkage and the transfer of AAUs (= emission rights under the Protocol). Voluntarily linking can thus not be expected. In case that the linkage is prescribed by super-national organisations as for example the EU commission, both winners and losers are likely to be produced. This in turn may refrain member states from approving such approaches.