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EBRD launches green CO2 trading contract for governments

  The European Bank for Reconstruction and Development (EBRD) on Monday launched the first standardized “green” contract for governments seeking to trade greenhouse gas rights under the Kyoto Protocol, a trade which some have dubbed “hot air.”


The Kyoto climate treaty lets industrialized countries meet greenhouse gas targets by buying emissions credits from other nations under three different trading schemes. One scheme allows Kyoto signatories that are comfortably below their emissions targets to sell excess quotas to other countries in the form of credits, called Assigned Amount Units (AAUs), that are not necessarily related to emissions cuts.

Launched on the sidelines of United Nations climate talks in Poznan, Poland, the legally-binding model agreement contains “greening” clauses that seek to quiet critics by forcing the selling government to invest sale revenues domestically in cutting its carbon dioxide. “The general purpose of the model agreement is to provide a benchmark to the markets for trading greenhouse gas emission allowances between governments, with a particular emphasis on greening,” said EBRD Carbon Finance Analyst Friso de Jong. “We’re trying to make the market transparent and countries accountable because a number of quotas will change hands but there’s no reference whatsoever to how exactly the money will be spent by the seller.”

The contract’s development was funded by the Dutch government with a view to lowering transaction costs for green AAU transactions and further developing the international carbon market, expected to be worth over $100 billion this year. “We intend to make this model agreement a standard for both parties, particularly for those who haven’t developed the expertise to negotiate such deals,” he said. The past three months have seen at least two AAU deals for a total 8 million metric tons of carbon dioxide, with Belgium and Spain as the buyers and Hungary as the seller.

Although no prices were published, an email from Hungary’s Ministry of Environment and Water seen by Reuters showed the country is asking for €13-15 ($16.50-$19.04) per AAU.


Russia and Ukraine, both well below their Kyoto emissions targets, have a glut of AAUs to sell and observers fear they could flood the market and depress the price of carbon credits globally. Under another Kyoto trading scheme called the Clean Development Mechanism, companies and governments can invest in clean energy projects in developing nations like China and India, and in return receive offset credits which can be used toward emissions targets or sold for profit.

AAU transactions are a concern for the companies that invest in these projects, and for the developing governments that generate revenues by taxing the profits. De Jong said developing countries were not consulted in the contract’s development, but added that by enforcing greening, the model agreement already goes beyond what is required in AAU transactions under Kyoto. “Developing countries could well benefit from this, as the approach would come close to a programmatic approach currently under development in the Clean Development Mechanism,” he said.

The model contract is still a draft and the EBRD will hold a second consultation session with governments on Monday in Poland. (Reuters)