U.N. climate talks fracture over future of carbon markets

By Ben Garside BONN Germany (Reuters) - The use of carbon markets to curb rising greenhouse gas emissions was dealt a blow on Sunday after two weeks of United Nations talks on designing and reforming the mechanisms ended in deadlock. The negotiations, held as part of U.N. climate negotiations in Bonn, Germany, made scant progress as envoys representing almost 200 nations tied reforms to progress under the wider discussions and remained entrenched in diverse positions. The stalemate gives investors little sign that there will be a pickup in demand under the Clean Development Mechanism (CDM), the U.N.'s current main carbon market which has seen activity dry up after funneling over $400 billion into emission-cutting projects in developing countries over the past decade. It also offers no guidance on how the growing patchwork of national and regional carbon markets worldwide will fit into a future international framework to tackle climate change. “It is disappointing we didn’t move forward,” said Elina Bardram, an official at the European Commission representing the 28 EU nations at the talks. “We believe there is a future for markets ... (but) to agree on something that wouldn’t be robust enough for us to engage on later on would just not make any sense,” she told journalists at a briefing after the talks ended on Sunday. DIVISIVE MEASURES Big-emitting businesses and rich nations including the United States, Japan, and members of the European Union, favor designing new market-based mechanisms to reduce global greenhouse gas emissions as cheaply as possible. Poorer nations have been more wary, particularly as most CDM investment went to wealthier emerging nations such as Brazil and China for industrial gas destruction projects, which generated healthy profits for companies but led to little sustainable development and had their environmental integrity questioned. Negotiations over a raft of CDM reform proposals broke down over whether to study how to convert the CDM to generate net emission reductions, rather than merely to generate carbon credits that can be used by developing countries to offset their emissions. Efforts to include the option were led by a group of over 40 low-lying island developing nations most at risk of being submerged by rising sea levels due to global warming. It was also backed by the EU, which has used the lion's share of CDM credits to date but wants to scale up global emission reduction efforts and encourage richer developing countries to pay for their own emission cuts. Some other developing nations blocked the move, reflecting a wider 20-year distinction in U.N. climate negotiations that has put the onus on industrialized nations to curb global greenhouse gas output because of their historical responsibility for emissions and capacity to pay. The deadlock dismayed other poorer nations keen to tap CDM investment. "We are disappointed by the lack of progress; the CDM has not yet seen its way to Africa," said a spokesman for Sudan on behalf of a bloc of 54 African nations. FRAMEWORK FALLS In a separate strand of the talks, governments failed to make much progress on efforts to launch a platform to help set common standards and accounting rules for reducing emissions and tie together national and regional emissions trading schemes. Separate text listing elements of such a platform, referred to a "Framework for Various Approaches", was promoted by a group of richer nations including United States and Japan, which are both designing their own programs to use foreign carbon credits. But this was removed after meeting resistance from developing nations, which first want rich governments to take on deeper emission reduction targets at home. Small island states and the EU are also concerned about advancing work on the framework without safeguards to assess the environmental integrity of new schemes, according to negotiators and observers to the mostly closed-door talks. The EU, whose draft contribution towards a Paris deal contained no firm additional demand for foreign carbon credits to 2030, has been criticised by investor groups for undermining its leadership role in new carbon market development. But the EU's Bardram defended the approach. She said the bloc was committed to developing market-based measures in the long term if other nations made comparable commitments. “We do need to allow for a situation to develop whereby other partners have sufficient ambition for a truly global market to develop," she said. The U.N. talks are scheduled to resume at the next negotiating round in December in Lima, Peru. (Editing by Eric Walsh)