Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets, predicts that the UN climate negotiations, to be held in Copenhagen in December 2009, will succeed in securing legally-binding emission reductions (known as QELROs - quantified emission limitation and reduction obligations) and that negotiators are likely to favour a step-wise approach in order to include developing countries. An agreement with two five-year commitment periods, 2013-2017 and 2018-2022, appears as a likely outcome.

The predictions appear in Point Carbon’s most recent Carbon Market Analyst, entitled Post-2012: The Copenhagen Commitments. In this report, Point Carbon estimates that the agreements which will be reached at the Copenhagen climate talks next year, where the Kyoto successor treaty will be negotiated, will cover 75 percent of global emissions in 2020 (equivalent to 41 Gt).Point Carbon assumes that all current Annex I countries, including the US, and some major developing countries, will take on absolute emission reduction commitments in the new climate change agreement. As far as developing country participation is concerned, the most advanced developing countries are likely to have economy-wide targets at or slightly below business-as-usual levels. The main developing emitters (China, Brazil, Indonesia and India) would, in the first phase (from 2013), commit to targets for one sector of their economy (e.g. 5-10 percent of their emissions). The details on the gradual inclusion of more developing countries and sectors are expected to be negotiated after Copenhagen.

Point Carbon forecasts that the overall reduction target for Annex I countries in 2020 will represent 15% compared to 1990 levels and 11% compared to 2005 levels.

These targets would translate into a 4% reduction of global emissions in 2015 (or 2.1 Gt/year) and an 8% reduction (or 4.7 Gt/year) in 2020, compared to business-as-usual.

Between 2013-2017, Point Carbon estimates that the total demand for emission reductions will be 10.5Gt and that for the period 2018-2022 this will rise to 23 Gt, compared to business-as-usual levels. However, global emissions will continue to grow, increasing by 25 percent between 2005 and 2020. Given the current conflict between developed and developing nations, the predicted outcome of the talks is far from a done deal.

According to Kjetil Røine, Manager at Point Carbon and author of the report, “The main line of conflict in Copenhagen will be between the Umbrella Group (US, Japan, Canada and Australia) and the developing countries (G77 and China).The first group broadly refuses to take on quantified emission reduction targets unless major developing emitters also commit to binding reduction targets. The second group calls for technology transfer and financial support, refusing to take on binding targets before Annex I countries reduce their emissions substantially. The EU tends to lean towards the Umbrella group in terms of demanding developing country commitments, but takes the middle ground when it comes to meeting developing countries’ demands for assistance.”

Røine continued, “If the EU manages to push the developing countries towards reduction targets, an agreement including the US becomes more probable, especially since both Obama and McCain are in favour of a domestic cap-and-trade scheme and say they will engage in the international negotiations, increasing the likelihood of an agreement. How the new US President engages in the negotiations is crucial for the outcome in Copenhagen. He added, “Because the political stakes are so high, that agreement is likely and in the case of a “satisfactory” international agreement, the European Commission’s 20 percent reduction target by 2020 compared to 1990 levels, could indeed be increased to 30 percent”.

Elsewhere, Japan has proposed a long-term target (60-80 percent below current levels by 2050) and a domestic emissions trading scheme (ETS), and there are similar pledges from Australia and Canada. Australia is currently designing its cap-and-trade scheme, scheduled to start in July 2010, and has set an emission reduction target of 60 percent below current levels by 2050. Canada’s climate plan sets an emission reduction target of 20 percent below the 2006 level in 2020. If the US decides to commit internationally, Canada is likely to follow. Australia and Japan are active in the negotiations and implement more domestic mitigation measures, and will hence probably sign the agreement regardless of what the US does.