UN-backed carbon trading plan to reduce greenhouse emissions on track for completion

An essential tool in efforts to reduce global warming gas emissions is on track for completion with testing in the coming months of a mechanism allowing countries that cut emissions below their targets to sell surplus allowances to others that have deficits, the United Nations body overseeing the project announced today.

The International Transaction Log (ITL) allows industrialized countries that have signed up to the Kyoto Protocol, which seeks to curb global warming, to link their national registries to the central hub of a settlement system that will deliver traded allowances from sellers to buyers.

The Protocol requires 35 industrialized countries to reduce greenhouse gas emissions below levels specified for each of them, amounting overall to reductions of at least 5 per cent below 1990 levels between 2008 and 2012.

In addition to the implementation of climate-friendly policies at home, the 1997 Protocol allows industrialized countries to meet their emission targets through trading emission allowances on a newly-created carbon market. Companies investing in climate friendly projects can obtain additional carbon credits for every tonne of emissions saved through Kyoto’s project-based mechanisms (Clean Development Mechanism and Joint Implementation). These can then be freely traded on the carbon market.

The registries of Japan and New Zealand have already linked their test environments to the ITL and have successfully conducted trial transactions.

Registry administrators, gathered in Bonn, Germany, on 29 and 30 March at the invitation of the secretariat of the UN Framework Convention on Climate Change (UNFCCC), were given a live demonstration of registries using their high security links to the ITL to conduct transactions.

“The secretariat is now undertaking final testing with a number of registries to verify that the ITL meets both the policy objectives and rules of the Kyoto Protocol and the expected demands of carbon market trading,” UNFCCC Executive Secretary Yvo de Boer said. “European registry developers are next in line and have begun linking in their test systems.”

ITL will become fully functional once national registries have successfully established operational links. All registries must pass an official set of tests to ensure they meet the necessary standards before they commence operation. “National registries are at various stages of readiness, with some of them scheduled to begin official testing of their systems against the ITL in late April and May this year,” Mr. de Boer added.

Some registries have been concerned about raising their security levels to the standards required to join the ITL. “With billions of euros at stake on the carbon market, it is critical that registry security is on a par with systems in equivalent markets,” he said.

The fact that individual countries join the ITL later does not prevent the ITL from becoming operational. European registries are currently working together under the European trading scheme and will join the ITL en masse later this year, according to the UNFCCC. Most registries belonging to Kyoto Parties within the European Union are expected to begin testing against the ITL from May onwards.

“Despite what some market rumours would say, it is well within European abilities to link to the ITL well before the critical date of 1 December 2007 to meet delivery of CDM future contracts,” Mr. de Boer said.