Japan, Spain, Italy Face $33 Billion Kyoto Payments (Update1)
By Kristian Rix and Mathew Carr
Nov. 30 (Bloomberg) -- Japan, Italy and Spain face payments of as much as $33 billion combined for failing to reduce greenhouse-gas emissions as promised under the Kyoto treaty.
The three countries are the worst performers among 36 nations that agreed to curb carbon dioxide gases that cause climate change. The 1997 Kyoto accord designed to slow global warming demands that polluting nations buy credits for their excess emissions from other industrial polluters or investors.
``They're looking at a huge bill now,'' said Mike Rosenberg, management professor at the University of Navarra's IESE Business School in Barcelona. ``That is because none would pay to reconvert factories, power plants and paper mills'' to trim gases blamed for the planet-warming ``greenhouse effect.''
Capping carbon emissions will be the focus of next week's climate change conference on the Indonesia island of Bali, where delegates from 190 nations will gather to start talks on a new treaty after the Kyoto accord ends in 2012.
Penalties imposed by the Kyoto treaty have spurred emission reductions. Spanish utility Iberdrola SA in the last five years turned itself into the world's largest owner of wind-energy parks, cutting CO2, or carbon dioxide, emissions per kilowatt by 15 percent this year.
Spain, Italy and Japan are likely to miss their Kyoto commitments because they underestimated economic growth and future emissions from factories and utilities.
Paying Piper
Under the Kyoto Protocol to the UN Climate Change treaty, endorsed by 175 nations and organizations, countries that exceed their emission caps must buy credits in the market. The sellers are typically investors or industrial polluters that have accumulated a surplus of credits, also called permits.
Spain faces a $7.8 billion cost, and Italy and Japan each may owe about $13 billion, based on estimates by their governments and the current price for permits.
``They were all too optimistic about mitigation measures,'' Milo Sjardin, a senior associate at London-based New Carbon Finance, an emissions research firm, said in an interview. ``They're going to have to go out and buy credits for the excess.''
Ireland may have to buy $1.3 billion in credits, while the U.K. and Germany are set to meet their emission goals.
Under Kyoto, governments create a limited number of permits they grant freely to industrial polluters. If the CO2 created is more than the amount the nation pledged not to exceed, the country must buy permits to make up the difference -- essentially a penalty for discharging too much.
U.K., German Goals
The cost of a permit to spew a ton of CO2 into the skies surged this year after evidence of global warming mounted and European states reacted by restricting the supply of allowances. The price for a 2008 certified emission-reduction credit rose 14 percent in the three months through Nov. 27 to a record 18.20 euros ($26.85) to release a ton of CO2, according to Nord Pool ASA power exchange prices on Bloomberg.
At that price, the three nations are poised to pay about 22.4 billion euros ($33 billion) to meet treaty obligations after the end of a 2008-2012 measurement period when a country's emissions will be calculated. Some governments and companies are buying permits early, locking in their price.
``We expect most governments to buy their permits around 2010,'' almost half-way through the measurement period, Bjarne Schieldrop, director of risk services at Oslo-based emissions research firm Point Carbon, said at a Madrid conference Oct. 16.
Missing Targets
Spain vowed to cap emissions growth at 15 percent above the 1990 level, and its government now forecasts 37 percent growth. Italy agreed to a 6.5 percent cut and may increase by 11 percent. Japan promised a 6 percent drop and estimates a 1.6 percent gain.
As a group, nations with Kyoto targets are headed to trim 11 percent during the measurement period from 1990 levels, beating their goal to cut by 5 percent, the United Nations said Nov. 20.
Italy, Japan and Spain are the worst-positioned for achieving Kyoto goals, according to government estimates compiled by New Carbon Finance. Canada is even further from its target, though it backed away from Kyoto to avoid clean-up costs. U.S. President George W. Bush rejected the treaty.
The U.S. this year may be replaced by China as the world's top emitter of greenhouse gases. Neither will be forced to buy permits. China also doesn't have a Kyoto cap.
Spain will pass 40 percent of the cost for the extra emissions on to businesses, Secretary of State for Energy Ignasi Nieto told journalists in Madrid July 31. The rest will come from taxes.
Endesa, Cepsa Impact
The penalties will hit local utilities including Endesa SA and refiners such as Compania Espanola de Petroleos SA, or Cepsa. ``Our negotiators didn't have a clue what they were getting into'' at Kyoto, Cepsa Chairman Carlos Perez de Bricio said at a conference in Madrid June 8.
In Italy, taxpayers will foot 75 percent of the bill for extra permits. ``Italy's behind, and we need to keep cutting emissions,'' said Environment Minister Alfonso Pecoraro Scanio on Sept. 13 in Rome.
Japanese taxpayers will pay for two-thirds of that nation's excess, New Carbon Finance estimated, based on the current sharing between state funding and industry.
The government of Japan has begun buying credits. It may consider introducing daylight saving time and emissions trading. Emissions were 1.341 billion metric tons in the year ended March, up 6.4 percent from 1990 levels, a preliminary report released on Nov. 5 by the environment ministry showed.
Japan is missing milestones because road-transport emissions jumped 23 percent since 1990, and power and heat production gained almost as much, the Paris-based International Energy Agency data shows. The country was ``overly optimistic'' on potential benefits from nuclear generation and forestry to curb CO2, Sjardin said. |
