Hot air deals should be linked to CDM
Last week Reuters reported the first ‘hot air’ deal, in which Ukraine sold 30 million AAUs to Japan. The cost was not disclosed. AAUs are the credits created under the Kyoto Protocol – if a country has a target of 1 million tonnes then it will be given 1 million AAUs by the UN.
Eastern European countries have far more AAUs than they need because their targets under the Kyoto Protocol are based on their emissions in 1990, before the Soviet Union collapsed and took Easten European industry with it. The chart below (courtesy of Global Warming Art) shows carbon dioxide emissions by region – you can see how emissions in Eastern Europe have declined since 1990.
This leaves the bloc with many more AAUs than they need – hence they are able to sell them to countries that find their targets more challenging, like Japan. These AAUs are often called ‘hot air’ and trades are felt to be immoral by environmentalists because they allow rich countries to buy themselves out of meaningful reductions.
Hot air deals are unavoidable under the Kyoto system. While Ukraine has pledged to spend the revenue on “six specific environmental measures”, the impact on emissions of these projects is very ambiguous.
Where AAUs are traded between countries, the revenue should go into projects that reduce emissions to the same extent as the AAUs, using the same rules as the CDM. This would allow AAU trades to continue without underminining the environmental integrity of the Kyoto system (at least to the extent that the CDM’s additionality test works), but would not necessarily inflate the AAU cost to the CER cost (if the seller was able to find cheap projects to spend the money on).