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happen in 2009, when a Slovakian environment minister was forced to resign after selling a portion of that country’s AAUs at below-market prices and withholding details of the sale (see the Slovakia case study which follows this section). The use of funds generated from sales of allowances also matters. Allowance auctions for the third phase of the EU ETS will generate significant revenue, 50 per cent of which is earmarked for climate programmes such as renewable energy and energy efficiency, reducing deforestation and funding adaptation to climate change. The Regional Greenhouse Gas Initiative in the eastern US also auctions allowances and uses revenues to boost investment for energy efficiency and renewable sources of power. In addition, 2 per cent of offset credits from the CDM are directed towards the UNFCCC’s Adaptation Fund, and revenues derived from the sale of assigned amount units may also be invested in environmentally oriented projects – so-called Green Investment Schemes (GISs). This last practice could be quite important in the case of eastern European countries, which under the Kyoto Protocol were allocated emissions targets exceeding their actual emissions. The resulting surplus AAUs, referred to as ‘hot air’, can be sold on to other countries or carried over to subsequent commitment periods, considerably undermining the overall efforts to reduce GHG emissions if the allowances are used. A contentious debate has arisen as to how the carry-over of surplus AAUs can be prevented in a post-2012 climate regime. In all cases, governments are entrusted with both an environmental and a financial asset, and have to manage these proceeds responsibly, transparently and accountably. Robust carbon markets: a collective responsibility
As a leading tool for mitigating climate change, carbon markets must be designed carefully, and they require strong, transparent and accountable oversight. The lessons from existing carbon markets suggest that several loopholes were created in establishing new policy instruments, which stifled the potential of carbon markets to mitigate global GHG emissions. It is imperative that these lessons be considered in establishing new markets, and used to improve and reform the existing mechanisms. Notes 1.
2. 3.
Lambert Schneider worked previously for the Öko-Institut in Germany and as an independent researcher. In October 2010 he joined the UNFCCC Secretariat. This article was written before that appointment. Alexandre Kossoy and Philippe Ambrosi, State and Trends of the Carbon Market 2010 (Washington, DC: World Bank, 2010), p. 1. Ibid., pp. 1–2.
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