KEY POINTS:
NAIROBI - A global climate change agreement which would underpin an international carbon market is still four years off, the Head of the UN's climate change body said at a climate change conference in Nairobi.
Carbon markets cap emissions of the greenhouse gases that the world pumps out
to power economic growth and modern lifestyles, forcing countries which bust their limits to buy emissions rights from those that undershoot.
A global carbon market would allow countries above their limits to shop around for emissions rights, and so help cut the cost of the swingeing cuts that analysts say the world needs.
But agreement on ambitious limits is about four years off, the Head of the UN Framework Convention on Climate Change, Yvo de Boer, told Reuters on the opening day of the Nov. 6-17 negotiations by 198 nations.
"Frustration is justified," he said. "It's going slowly. The problem is that countries' interests conflict in a number of areas."
For example, oil-producing states fear the impacts of carbon limits on their income. Small island states fear they will be inundated by rising sea levels, while developing countries want to put poverty eradication before emissions cuts.
The UN's climate body already supervises a global carbon trade between rich and poor nations which could provide the glue between a market in the European Union, and expected schemes in the United States, Australia and elsewhere.
"I think we would do the book-keeping," de Boer told Reuters.
"Once you know in 2010 the ambitions of industrialised countries you get clarity on a carbon price."
The commitments would not take effect until 2012.
In the first nine months of 2006, the carbon market grew to nearly US$22 billion ($33 billion), more than doubling in value over the almost US$11 billion recorded in 2005, the World Bank said in a market update last month.
That market was dominated by the EU trading scheme, seen the model for a global market.
The EU market was the world's most exciting environmental policy, David Miliband, UK environment minister said in a Reuters interview last week.
"Everything that governments do needs to contribute to the confidence that businesses and markets have in the long-term carbon price."
As a financial services base Britain dominates the carbon market globally, accounting for 45 per cent of buys from poor countries under the UN scheme.
The EU market has attracted criticism from green groups for setting too generous emissions caps on heavy industry.
"If the EU scheme doesn't direct investment into clean energy technologies it's just a scheme for commodities speculators," said Greenpeace's Steve Sawyer on Monday.
"Potential", and "massive" are words that market players frequently use.
"I should say we are in very early days," said Peter Koster, the Chief Executive of the European Climate Exchange.
"In the first instance what you'll see are regional markets in the US, in Europe, in the Far East, and eventually via linkages through (the UN scheme). It will take a couple of years, maybe a decade. It will be massive. On a daily basis it will be billions (of euros traded)."
- REUTERS