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UN Climate Talks Seek Carbon Market    12/05 06:20

   BERLIN (AP) -- On a cold afternoon in late November, Jan Gerrit Otterpohl 
eyes the chimneys of Berlin's Heizkraftwerk Mitte, a state-of-the-art power 
plant that supplies the city with heat and electricity. It's not the billowing 
steam he's interested in, but the largely invisible carbon dioxide that the 
power station exhales as it burns natural gas.

   Under European Union rules, the plant's operator, Vattenfall, needs a permit 
for each ton of carbon dioxide it emits. Otterpohl's job is to keep costs low 
by making sure the company buys only as many permits as necessary, at the 
current market price.

   Economists say that carbon markets like the one Otterpohl uses can become a 
powerful tool in the fight against climate change, by giving emitters a 
financial incentive to reduce greenhouse gases. But despite making progress in 
other areas, governments have for years been unable to agree on the rules that 
would allow truly global trade in carbon permits to flourish.

   Negotiators at a U.N. meeting in Madrid this month are aiming to finally 
tackle the issue, after last year agreeing on almost all other parts of the 
rulebook governing the 2015 Paris climate accord.

   "There are reasons to be optimistic and to think that there could be some 
progress because of the political attention that it's getting," said Alex 
Hanafi, a lead counsel at the New York-based Environmental Defense Fund.

   Many governments are struggling to make the emissions cuts necessary to meet 
the Paris accord's goal of keeping global temperatures from rising more than 
1.5 degrees Celsius (2.7 Fahrenheit) by the end of the century.

   The hope is that putting a price on carbon will unlock billions of dollars 
in investments as countries and companies seek the most cost-effective way to 
cut emissions. By capping the number of permits in the market and reducing it 
steadily, the incentive to save on emissions would grow over time.

   "There is tremendous potential for carbon markets to contribute to the 
achievement of the Paris agreement goals," said Hanafi.

   But he warned that a bad deal on carbon markets, known in climate diplomacy 
parlance as 'Article 6,' would be "worse than no deal at all."

   That would be the case, for example, if airlines find it cheaper to offset 
their emissions than reduce them; or if countries protect large areas of 
carbon-absorbing forests, sell the resulting permits to other nations and 
simultaneously count them toward their own emissions-reduction efforts.

   Brazil has long pushed back against some of the stricter accounting rules 
demanded by the EU and the United States. The Latin American nation, criticized 
by environmentalists for failing to properly protect the Amazon rainforest, 
also insists that it should be allowed to keep vast amounts of carbon credits 
amassed under a now-discredited system.

   "It's very important to really avoid these kind of negative impacts," said 
Claudia Kemfert, a senior energy expert at the German Institute for Economic 

   Kemfert noted that it took more than a decade to tweak the emissions trading 
system that so far only covers the power and heavy industry sectors in 27 
European Union countries--- all, except Britain --- plus Norway, Iceland and 
Liechtenstein --- a region with well-functioning markets and low levels of 

   Otterpohl, who oversees emissions at Vattenfall's Berlin power plant, agreed.

   "As far as the EU (emissions trading system) is concerned, there's now a 
mature and functioning market in the areas it covers."

   Expanding that market to cover other sectors in the EU, such as 
transportation and home heating, or linking it up with other existing emissions 
trading systems in China, California and elsewhere should be possible, said 
Daniel Wragge, the director of political and regulatory affairs at the European 
Energy Exchange in Leipzig, Germany.

   "Technically speaking, it's not a challenge," said Wragge, whose company 
manages the marketplace for European emissions, where a ton of carbon dioxide 
is currently traded for about 25 euros ($27.70). "But, of course, there are 
certain conditions and the key is, of course, that the certificates are 
mutually recognized."

   Kemfert cautioned that putting a price on emissions alone won't stop climate 

   "What we need are many, many activities to reduce emissions," she said. "If 
we reach a carbon market, that's fine. But we should go for other solutions 
very urgently."


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