(The author is a Reuters market analyst. The views expressed are his own.) By Gerard Wynn LONDON, Nov 16 (Reuters) - The next round of talks on the Kyoto Protocol will show the flaws of a strategy based on setting national caps on carbon emissions and the need for an entirely different approach. In Doha, Qatar, at the end of this month, countries will try to thrash out agreement on a second round of the Kyoto accord after the first ends on Dec. 31. But the talks have scant hope of success due to a continuing focus on national emissions targets. Most countries refuse to accept carbon caps in the first place, and their use under the first round of Kyoto has created an accounting framework that Russia and Ukraine could use to weaken future climate agreements indefinitely. Kyoto failed to impact the world's four biggest carbon emitters. The United States, at No. 2, did not ratify because Kyoto did not cap emerging economies including China, No. 1, and India, No. 3. Russia, No. 4, only ratified because its cap was too generous. Russia and Japan are dropping out of the second round, saying they prefer to wait for a wider deal meant to come into force in 2020 that would cap all countries including emerging economies. But such a wider deal has been elusive since the start of talks in 2007. Only Europe, Australia, Ukraine and a handful of smaller industrialised countries remain in the only global climate agreement from 2013 to either 2017 or 2020 (yet to be decided), limiting just 14 percent or so of the world's greenhouse gases. As if that were not bad enough, the Doha talks must solve an accounting wrangle. Countries that had an easy ride in the first round from 2008 to 2012 now want to carry forward their surplus emissions rights, undermining future deals. At this point, persistence with negotiations on carbon caps seems a flawed strategy. An alternative focus on negotiating common global policies is likely to be more effective, including such measures as: * Phasing out fossil fuel subsides, already an initiative under the G20 group of leading countries * Improving the fuel economy of cars, an area in which the United States, the European Union and China have parallel initiatives, and * Stepping up global efficiency standards for home appliances, a measure unlikely to court controversy as it saves households money while making vast carbon savings. SURPLUS Under Kyoto, industrialised countries got quotas of emissions rights, called assigned amount units (AAUs), each equivalent to 1 tonne of greenhouse gases. Now that the round is drawing to a close, it is clear that the quotas set for former communist countries were far too generous. The surpluses arose because the Kyoto targets used a baseline of 1990 for emissions cuts. That was one year after the fall of communism, when the collapse of Soviet-era industries in eastern Europe, Russia and former Soviet republics including Ukraine led to sharp drops in emissions, making any target against that year easy to achieve. Collectively, countries have accumulated a surplus of more than 13 billion tonnes of AAUs, equivalent to the annual emissions of China and the United States combined, according to Thomson Reuters Point Carbon. (see Chart 1) *************************************** Chart 1: http://link.reuters.com/muv93t Chart 2: http://link.reuters.com/puv93t *************************************** Under Kyoto, countries with surplus emissions rights can sell these to others that fall short, and some 314 million tonnes have traded under Kyoto in this way, according to Point Carbon. Such a trading mechanism further motivates countries to hold out for softer caps. Under the Kyoto Protocol, the default situation would allow full carryover of surplus AAUs from the first to the second commitment period and beyond. "If the emissions of a party ... in a commitment period are less than its assigned amount under this article, this difference shall, on request of that party, be added to the assigned amount for that party for subsequent commitment periods." (Article 3, Paragraph 13) It would suit Russia, Ukraine and eastern European countries to cling to their massive surpluses in the next round of Kyoto or beyond, from 2020. The final position will depend on decisions taken at the Nov. 26-Dec. 7 conference in Doha. The carryover problem is a negotiating priority. "Resolving this issue in Doha is imperative but parties' views still appear to be divergent, and a concerted effort may be needed to find a solution which is acceptable to all parties concerned," said the chair of the Kyoto Protocol talks in a U.N. memo dated Nov. 12. The European Union has not taken a position except to point out that if countries agree to ban AAU carryover altogether, that will conflict with its emissions trading scheme (ETS). The EU ETS allows companies to transfer surplus emissions allowances from 2012 to 2013 and beyond, meaning banning a carryover of AAUs would result in an accounting headache. OPTIONS So far the only countries that have suggested changes to the default scenario are developing countries with nothing to lose. The Alliance of Small Island States in May proposed that countries could carry forward their surpluses, but only if their targets in the next round of Kyoto are below their recent historical emissions. In September, the main "G77 Group" of developing countries endorsed a similar idea. Such a system would rule out Russia, which projects a rise over the next decade, and Eastern Europe, whose 2020 targets under the EU climate package also project rising emissions. (see Chart 2) A group of African countries has also proposed preventing any carryover across more than one commitment period, which would stop Russia from hoarding its surplus beyond 2020. Russia and the European Union have been silent on the issue. Ukraine, the only affected country to express its view, indicated in August that there must be no change on previous rules allowing unlimited carryover. It demanded in its submission that, "There are no amendments made in paragraph 13 of Article 3 of the Kyoto Protocol". Such irreconcilable positions in advance of U.N. meetings, where decisions are agreed by unanimity, are the backdrop of climate negotiations over the past decade. Those talks must continue as a forum especially for weaker and poorer countries most affected by more extreme weather and to review climate science and political progress. But the time is overdue for an alternative focus on measures on which countries can agree, especially focused on efficiency and the phasing out of support for fossil fuels. (editing by Jane Baird)
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