Too hot to handle? The emission surplus in the Copenhagen negotiations

Hot air not necessarily an obstacle for Copenhagen

Relevance for COP15 in Copenhagen

This report analyses the effects of various strategies of dealing with surplus emission allowances or assigned amount units (AAUs), often known as 'hot air', in the Copenhagen negotiations. The environmental, financial and negotiation consequences of 'hot air' are analyzed. This high-profile topic in the Copenhagen negotiations is relevant, in particular, with respect to the Russian negotiation position, as this country is by far the largest holder of AAUs. It is concluded that not addressing the surplus problem and waiting for future evolvement of the carbon market is not a feasible outcome of the negotiations, as the sheer size of the surpluses of old and new hot air would jeopardize the environmental integrity of any future agreement. Cancelling emission surpluses against Russia's will is a viable option, although it might well lead to them opting out of this climate treaty, with potential negative effects for broader international relations.

Available options

However, there are various options for an effective compromise available. Based on discussions with negotiators, three of these options have been selected and analysed in this report. These are, in decreasing order of environmental outcome, but in increasing order of political viability:

1. Stricter Annex I targets;
2. Strategic reserve for Russia;
3. Institutionalising optimal banking.

It is suggested that policymakers consider all three options in their search for a compromise regarding the surplus emission issue in the Copenhagen negotiations. In addition, the option of cancelling all emission surpluses against Russia's will by for instance voluntary buyer countries' restrictions on the use of surpluses for compliance should be pursued for strategic purposes in the Copenhagen negotiation context.