UNITED NATIONS -- Japan's nuclear energy crisis is lifting carbon markets around the world as European governments are seen increasing their reliance on fossil fuels and revising their future energy plans. But there is growing concern that the Japanese will decide that they can no longer afford to spend money on climate change programs in the wake of the tsunami disaster, raising questions about what this would mean for global emissions trading.

Officials in Tokyo insist that they are weeks away from taking any formal decision. But there is growing speculation in analytical circles that Japan will invoke that part of the Kyoto Protocol treaty that allows it to declare "force majeure". That clause lets governments suspend their emission reduction commitments in the event of major national calamity that upends their ability to reduce greenhouse gas emissions.

Experts believe the March 11 tsunami more than qualifies for this designation. Unofficial estimates suggest that rebuilding the devastated cities could cost Japan at least $200 billion, leaving much less discretionary spending for the debt-burdened government there.

Already struggling to meet its reduction commitments, which have been strengthened since the Copenhagen climate change summit in 2009, Japan had been relying almost entirely on purchases of international carbon emissions offsets to meet its goals. These include the U.N.-issued Certified Emission Reductions (CERs) generated in the developing world, but also the Assigned Amount Units (AAUs) awarded to former Soviet bloc nations.

Japanese companies and the government account for the greatest part of demand for AAUs, purchasing more than 70 percent of the total traded so far. By declaring force majeure Japan would no longer be under any obligation to soak up these AAUs, leaving few markets left for the Eastern European governments that hold them.

Still, most carbon market experts predict few serious repercussions for global carbon trading should Japan end its AAU purchases.

Because they count emissions cuts obtained from a collapse in economic activity in Eastern Europe, and not from any actual emission reduction programs, AAUs are heavily stigmatized as "hot air" by climate activists and shunned by most member states in the European Union. But analysts say the AAU market is so small that even a drop in 70 percent in the demand for credits won't have much impact elsewhere.

"Not much impact as they are more or less over with their purchase," said Emmanuel Fages, an analyst with Société Générale. "Moreover [force majeure] is suspension, not cancellation of the obligation."

Impact on emissions trading unclear

Emilie Mazzacurati, an expert on carbon markets at the analytical firm Point Carbon, agrees that losing the AAU market will probably not have a great impact on emissions trading. The European Union and New Zealand in particular are relying on carbon markets as their principal vehicles for driving down industrial emissions of heat-trapping greenhouse gases, the prime cause of climate change.

What it means for the CER market is even less certain.

Japan has been one major purchaser of these credits, providing much needed liquidity to companies that invest in emission reduction projects, but they have not been the biggest buyer. And Japan has been lately signaling its intent to turn away from the U.N. system that generates CERs, called the clean development mechanism, and toward developing its own system, which it hopes other Kyoto Protocol signatories will recognize.

"The impact on CER demand for us is not clear cut necessarily," Mazzacurati said.

Data shows that Japan has to date purchased around 157 million AAUs, each unit valued at the equivalent of one metric ton of carbon dioxide-equivalent greenhouse gas emission reductions. The units can be bought from between €5 and €15 each, or around $7 to $20.

But as CERs generally cost more, Tokyo and Japanese firms have been relying much more heavily on AAUs as a means to offset their own greenhouse gas output. Point Carbon estimates that the Japanese have bought around 24 million CERs so far, less than one-sixth of the volume of their AAU purchases.

In fact, in the short run Japan's nuclear power safety problems have actually lifted CER prices as they have for other tradable financial products linked to CO2.

Japanese government still 'nowhere near' Kyoto decision

With so many nuclear power stations out of operation in Japan, energy traders speculate that the country will have to rely much more heavily on liquefied natural gas (LNG) imports to feed their power demand. That has caused international LNG prices to jump, lifting prices for natural gas in Europe as well.

European carbon markets normally track gas prices, rising when the cost of LNG rises. CER prices have risen from the €10 range toward €13 in the wake of the nuclear crisis. The cost of European Union Allowances (EUAs) is now approaching €17 per ton, 13 percent higher than where they were before the devastating earthquake in northeastern Japan.

Some bankers speculate that demand for coal will soar after Germany announced plans to suspended nuclear power plant permitting renewals for at least three months. The prospect for rising European emissions as a consequence of more heavy dependence on fossil fuels is leading to more bullishness in the global carbon markets.

"We now forecast European CO2 emissions to be up by 8 Mt (million tons) in next three months and 24 Mt in 2011," said Barclays Capital carbon market analyst Trevor Sikorski in a note to clients. "Over the remainder of phase 2, we forecast emissions forecast to be higher by 60 Mt."

As to whether the tsunami disaster will cause Japan to more or less end its participation in the Kyoto Protocol, market watchers are so far stressing caution in making such a prediction now.

"I don't think anybody, not even the Japanese government, has a really thorough understanding of what the long-term consequences are going to be for Japan," Mazzacurati said. "We]re nowhere near them making this call, I think."