16 November 2009
As the world prepares for the Copenhagen Summit on climate change in December to discuss a new binding agreement to replace the Kyoto Protocol, which expires in 2012, we consider some of the main talking points and the prospects for achieving a new treaty.
To begin, it is necessary to take a brief look at the existing international architecture governing climate change.
Background Kyoto Protocol Targets and Mechanisms
At the 1992 Earth Summit in Rio de Janeiro, 189 countries agreed to establish the United Nations Framework Convention on Climate Change (UNFCCC). The Kyoto Protocol, signed in 1997, is an international agreement made under the auspices of the UNFCCC. The major feature of Kyoto is that it sets binding targets for 37 industrialised countries and the European Community to reduce greenhouse gas (GHG) emissions. These amount to an average 5 percent cut in GHG emissions against a 1990 baseline over the five-year period, 2008-2012. The major distinction between the Protocol and the Convention is that, while the Convention encouraged industrialised countries to stabilise GHG emissions, the Protocol commits a number of them (the "Annex I" countries) to do so.
Under the UNFCCC, countries must meet their targets primarily through national measures. However, the Kyoto Protocol offers countries additional means of meeting their targets by way of three market-based mechanisms, which allow governments and emitters to trade allowances and project-based credits. These mechanisms are:
- Emissions trading. Each Annex I party has a predetermined number of Assigned Amount Units (AAUs), calculated on the basis of its 1990 greenhouse gas emission levels. The parties can buy or sell the right to emit GHGs by trading AAUs with each other.
- Clean development mechanism (CDM). The CDM allows Annex I countries with a GHG reduction commitment to invest in projects that reduce emissions in developing countries. CDM projects generate credits called Certified Emission Reductions (CERs). CERs can be used for compliance purposes in the Annex I country, meaning AAUs and CERs are fungible (interchangeable). CERs are also used, within limits, by companies to meet their compliance obligations in regional cap and trade systems. Currently, the CDM is the mechanism used to link developing countries to existing carbon markets.
- Joint implementation (JI). JI allows Annex I countries to meet their Kyoto obligations by investing in emission reduction projects in other Annex I countries, resulting in the creation of Emission Reduction Units (ERUs). JI has made slow progress, with only around 200 projects registered to date.
These mechanisms are intended to help stimulate green investment and help Annex I countries meet their emission targets in a cost-effective way.
Lessons From Kyoto
Although the Kyoto Protocol establishes legally binding caps on GHG emissions for some major industrialised countries, its principal weakness lies in the fact that it fails to cover some of the world's biggest GHG emitters. Neither the US, nor the major advanced developing countries (ADCs) such as China or India, have accepted GHG emission reductions targets.
Sealing a deal at Copenhagen hinges on bridging the gap between richer and poorer nations on how to share the twin burdens of cutting emissions (binding GHG reduction targets) and paying for its impacts (i.e., determining whether and how much the industrialised countries are prepared to pay to help poor countries adapt to the impacts of climate change).
Copenhagen — What Could A Deal Cover?
The broad scope of the negotiations that are due to be completed in December in Copenhagen was set out two years ago in the so-called Bali Action Plan (BAP). The BAP called for a new deal on climate change to be built on a number of pillars:
- A shared vision for long-term cooperative action, including a long-term global goal for emission reductions
- Enhanced national/international action on mitigation of climate change
- Enhanced co-operation on adaptation to the impacts of climate change
- Enhanced action on development and transfer of technology to support mitigation and adaptation in developing countries
- Enhanced action to provide financial resources and investment that support action or mitigation, adaption and technology transfer.
Caps and targets
All major governments now recognise that global warming is a reality and that humans must reduce GHG emissions to reduce the risks of "severe climate change impacts." The Intergovernmental Panel on Climate Change (IPCC) has said that, even with dramatic cuts to carbon emissions on the order of 50 to 80 percent by mid-century, average temperatures are likely to increase by 2 to 2.4° C, with corresponding unpredictable changes to weather and sea levels. Smaller cuts, or increases in current emissions, would have an even greater effect, where the climate impact is predicted to be catastrophic.
The IPCC is recommending a global cap of a 2°C maximum increase in temperature. This cap has broad support: for example, at the G8 summit in July 2009, leaders of major developed countries made a declaration supporting emission reductions to limit the global temperature rise to below 2°C.
In order to achieve this, it has been estimated that developed countries will collectively need to reduce their emissions by at least 80 percent by 2050, when compared to 1990 levels. The IPCC also recommends that developed countries should adopt intermediate targets which, taken collectively, are within the range of 25 to 40 percent below 1990 levels by 2020.
The EU has independently committed to a 20 percent reduction in EU emissions by 2020, raising this to 30 percent if a global deal is reached, in which comparable industrialised countries take on similar targets. However, at the time of writing, the current commitments from industrialised countries fall far short of this.
In order to limit the average global temperature rise to 2°C, developing countries as a group also need to cut their emissions from business-as-usual levels. While total emissions from developed countries fell slightly between 1990 and 2006, those from developing countries grew by around 75 percent, and are set to continue growing rapidly. It has been estimated that many countries, including China, could see emissions rise by 50 percent or more between now and 2020. Recent research estimates that by 2020 emissions in developing countries as a group need to be at least 15 percent (and possibly as much as 30 percent) lower than projected business-as-usual levels.
However, commitments from ADCs to emission reductions targets have been minimal to date. China has pledged that it will make "substantial reductions" in its citizens' individual carbon output, but has not so far expanded on that commitment. Indonesia has promised binding cuts, but precious little has been heard from India and other major ADCs.
The other key issue in GHG reduction is funding. It is estimated that developing countries will, in due course, need €100 billion a year to fund mitigation and adaptation efforts. Between €25 and 50 billion a year of that would have to come from international public funding.
At their summit at the end of October, EU leaders had been expected to make a specific commitment providing a share of those funds. However, disagreements over how the financial burden is to be shared amongst EU member states led to a deal being fudged: a working group will be set up to consider each member state's financing capabilities.
Scaling Up the Kyoto Mechanisms
Although limited progress has been made on targets and financing, the nuts and bolts of some of the other mechanisms to be included in a new deal are progressing. The key to this is scaling up the Kyoto mechanisms.
As explained previously, the current CDM has delivered emissions reductions and finance mechanisms for developing countries, but has some significant limitations. New instruments could look at whole sectors of an economy, rather than just individual projects as in the case of the CDM. Countries at different levels of development will be ready to use different mechanisms at different rates, in accordance with the principle of common but differentiated responsibilities and respective capabilities. There are three primary options to build upon the existing Kyoto framework.
- Sectoral Trading and Sectoral Crediting. Under two new government-level carbon market mechanisms, Sectoral Trading and Sectoral Crediting, developing countries could access greater levels of carbon market finance than under the current CDM. Under either sectoral mechanism, developing countries would agree to a sector-based emissions baseline prior to the start of a compliance period, with the baseline set below business-as-usual emissions levels. The government in question would then use a portfolio of policy instruments (including, possibly, carbon taxes or domestic trading schemes) to reduce actual emissions below the baseline. Under the sectoral trading mechanism, countries would receive credits at the start of the period and would be required to buy credits from abroad if they did not meet their target. Under sectoral crediting, the credits would be issued at the end of the compliance period and there would be no obligation on the government in question to buy carbon credits from abroad if it did not achieve its target.
By linking to carbon markets in developed countries, sectoral trading in particular could bring major new flows of investment to developing countries where emissions are growing fastest, enabling those countries to reduce the costs of emissions reduction.
- CDM Reform. A continuing role for improved project-based approaches is envisaged in sectors and countries that are not yet ready to take on new sector-wide mechanisms. A number of the perceived shortcomings in the current CDM could be overcome through greater use of sectoral benchmarks. This reform would avoid the need for each project to be individually approved by the CDM Executive Board on the basis that the abatement would not otherwise have occurred (i.e. that it is "additional"), thus reducing cost and bureaucracy.
- REDD. One of the limitations of the current Kyoto Protocol is that, in general terms, its applicability to the land use and forestry sector is restricted to "emissions and removals of greenhouse gases resulting from direct human-induced land use, land-use change and forestry activities (LULUCF).” This narrow category relates only to forestation and reforestation activities and has not been able effectively to harness the potentially massive emissions reductions from this sector.
REDD, or reduced emissions from deforestation and forest degradation, was proposed as part of the BAP. The basic concept is simple: governments, companies or forest owners should be rewarded for keeping their forests instead of cutting them down. In the context of Copenhagen, it is proposed that the financing of reducing emissions from REDD actions, such as stopping forest degradation and supporting forest management, should be included as part of a new global deal and that those actions will be included as part of the broader financial framework proposed to support developing countries.
Prospects for Success
It appears increasingly unlikely that any deal in Copenhagen will result in a single treaty ready for ratification. Indeed, Yvo de Boer, Executive Secretary of the UNFCCC, said (at the end of October) that "it is physically impossible to finalise all the details of a treaty in Copenhagen." Instead, it is hoped that a political accord will be reached at Copenhagen, but how precise that will be, in terms of binding emission reductions targets and financing for mitigation and adaptation, is difficult to say. There are still opportunities for major players to reach agreement on some elements of a deal: a G20 finance ministers meeting and, crucially, bilateral Sino-US meetings are both planned in advance of the Copenhagen summit. At the time of writing, though, pundits are predicting that a deal will take between another six months to a year to get hammered out.