Japan still buying Ukraine carbon permits

Ukraine AAU Misuse Allegations highlight risks in Kyoto Protocol emissions trading, as Assigned Amount Units sold to Japan raise concerns over carbon credits, climate finance compliance, Yulia Tymoshenko, greenhouse gas targets, and reputation risk.

Japan has no objection to buying more carbon emissions rights from Ukraine as its checks have shown that money Tokyo previously paid for permits has been properly accounted for, a government official said.

Ukraine's current government has accused the former prime minister of misusing the funds.

"We sent people to Ukraine twice last year and in November confirmed the full amount of money was secured at the account," So, we don't see any problem," the official said.

Developed nations which are comfortably below greenhouse gas targets under the Kyoto Protocol can sell excess emission rights to other countries, such as Belgium buying Hungarian rights under Europe's market, called Assigned Amount Units AAUs.

The AAU deal for 30 million tonnes of carbon dioxide equivalent was made in 2009 with Ukraine's former government headed by Yulia Tymoshenko, amid reports of Ukraine selling credits to Spain that year as well. The payments were to be used for emissions cuts and other environment projects.

Ukraine's government has accused Tymoshenko of misusing 380 million euros US $499 million from the sale of AAUs, under a broader criminal investigation into the affairs of her government.

Tymoshenko denies charges of misusing state funds raised by selling carbon emission permits.

Ukraine's President Viktor Yanukovich is set to visit Japan. His agenda is expected to include selling more AAUs but the Japanese government official said Kiev has not officially made a new offer of AAUs to Japan.

The official said that Japan may not buy more emissions rights from Ukraine immediately as its last purchase, from Poland, moved it close to its target for 2008-2012, and in Europe Spain bought rights from Hungary around the same period.

Japan's government and companies have been the biggest buyers of Kyoto carbon rights outside Europe, aiming to help the world's fifth-biggest emitter meet its obligations, while Canada buying Kyoto credits illustrated a similar approach to cut greenhouse gas emissions to 1.19 billion tonnes on average over Kyoto's 2008-2012 period, down 6 percent from 1990 levels.

A carbon trader in Tokyo said hardly any Japanese companies were interested in buying AAUs from Ukraine after the questions raised by the allegations of misuse.

"A negative image has attached to Ukraine's AAUs. I doubt there is ample demand to balance off the reputation risk," the trader said, adding that most of the major Kyoto carbon credit buyers, like TEPCO in Japan and other power companies, have already bought as many credits as they needed for the 2008-2012 period.

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