International climate change negotiations: Key lessons and ... · the climate change negotiations. Chapter 3 then addresses the outcomes of the Cancun climate change negotiations

International climate change negotiations:Key lessons and next steps

Smith School of Enterprise and the EnvironmentUniversity of Oxford

July 2011

Contents

Smith School of Enterprise and the Environment 1

Executive Summary 3

Chapter 1 The Scope of the Study 5

Chapter 2 The International Climate Change Negotiations 7History of the Negotiations

Chapter 3 Copenhagen and Cancun 11Cancun Outcomes in the Context of CopenhagenThe Cancun AgreementsImplications of the NegotiationsAnalysis of Current National Targets and ActionsAssessment of Key Pledges

Chapter 4 Learning from the Negotiation ProcessNegotiations ForumLegal FormPledge-and-ReviewTemperature and Emissions TargetsCorporate Sector ActionsGlobal Fossil Fuel Supply Capability

19

Chapter 5 Next StepsPricing CarbonFunding for Mitigation and Adaptation in Developing CountriesFunding for Research, Development and Demonstration (RD&D)Forestry Carbon Sequestration

27

Chapter 6 Parallel Processes 37

Chapter 7 Summary 41

Appendices 43AcknowledgementsAcronymsBibliography

Contents

Authors Professor Sir David King FRS Dr Kenneth Richards Sally Tyldesley

Smith School of Enterprise and the EnvironmentUniversity of Oxford

Hayes House75 George Street

OxfordOX1 2BQ

www.smithschool.ox.ac.uk

1Smith School of Enterprise and the Environment

Smith School of Enterprise and the Environment

TheSmithSchoolisaninteractivehubwithinOxfordUniversitythatengageswith,educatesandequipspublicandprivateenterprisewiththesolutions,knowledgeandnetworksneededtoaddressthemajorenvironmentalchallengesfacingourplanet.

TheSchoolstronglybelievesthattheonlywaytoaddresstheenvironmentalchallengeswefaceisbycon-veningandpartneringwithbothpublicandprivateEnterprise

TheSmithSchoolhelpsPublicEnterprisewithPoliciesthatcreateopportunitiesforPrivateEnterprisetodevelopSolutionstoaddressthemajorenvironmentalChallengesfacingourplanet.

Itdoesthisbyplayingthreeroles:

• Atranslatorandintegrator• Anintelligentuserofresearch• Aninter-disciplinaryhub

2 Smith School of Enterprise and the Environment 3Smith School of Enterprise and the Environment

Executive Summary

The challenges to policymakers raised by climatechange arewide-ranging and the threats posed tosocietyaresubstantial. It isnowwidely recognisedthat reducing greenhouse gas emissions anddeforestationareof thegreatesturgencyand thereis, at last, a clear mandate for effective political,technologicalandfinancialactiononaglobalscale,although the process for achieving this remainsfrustratinglyelusive.

This reportprovidesasummaryof the internationalefforts to address the problem of climate changethrough the UNFCCC and G8/G20 processes. Inparticular, the outcomes of the Copenhagen andCancunConferenceofParties(COP)negotiationsareexamined.Fromthis,keylessonsthatcanbedrawnfromthenegotiationsare:

- The current actions pledged are still a longwayfrom what is necessary: individual Governmentsneedtotakemoreactiontocurbemissions

- New forums for negotiations should be utilisedin parallel with the UNFCCC process, focused onbilateralandregionalaction

- The pledge-and-review system set up inCopenhagen and Cancun is a useful way forwardin the absence of an international legally-bindingagreement

The report puts forward a series of next steps oractionsthatwouldbepracticalinfurtheringpracticalaction.Notably:

- Strong decisive steps are needed from keygovernments to place a long-term, stable andappropriate price on greenhouse gas (GHG)emissions. This will signal to the corporate sector

thatclimatechangeistobedealtwithseriously,andstimulateappropriateinvestmentfromthatsectortoproducemarket-facingsolutions

- Limiting emissions from deforestation is a keyarea in which incentives need to be put in placeimmediately

- RD&D spending on clean energy should beincreased with the public sector using its limitedfundstoleverageprivatesectorinvestment

-Theco-benefitsbetweenenergysecurity,economicstimulusthroughenergyefficienciesandinnovation,andtacklingclimatechangeshouldbehighlighted

Thereportemphasisesthatfundingformitigationandadaptationinleastdevelopedcountriesisalsocritical.TheGreenClimateFundsetupatCancunmarksoneattempt at achieving this. Equity is also critical totheclimatechangeissue,andneedstobeproperlyconsidered in any proposed solutions. Potentiallyrunningalongsideotherfundingmechanisms,acapand tradesystembasedonapercapitaemissionstargetbymid-centuryisproposedhereasapotentialmethodofgeneratingfinancialflowsfromdevelopednationstotheleastdevelopedworld,whilstcreatingincentivesforlocaldecisionmaking.

To conclude, although the challenges raised byclimate change are considerable, these challengesare also major opportunities for innovation anddevelopment.

ExecutiveS

ummary

ExecutiveSummary

Figure1-Amapofcountriesoftheworldratedintermsofnationalactionsandcommitmentsonclimatechange.AnnexIcountriesareratedbasedonsubmissionspertinenttotheCancunAgreements.‘Verygood’:meetIPCCrecommendations,AnnexI:25-40%reductionby2020,Non-AnnexI:submittedNAMA,15-30%belowBAUby2020,orvocalinpressingforaction.ThosecountriesnotparticipatingintheUNFCCCprocessarecolouredgrey.


Introduction

Recentpainstakinganalyses,basedontendifferentindicatorsofglobaltemperaturechangewhichincludeairandseatemperatures,meltingiceandrisingsealevels, produced by US and UK Government andMeteorological Office scientists, show that globaltemperatureshavebeenrisingsincethe1850s[1].

The US National Oceanic and AtmosphericAdministration conclude from separate data thatJune 2010 was the hottest on record [2]. In 2010,record high temperatures were reported in 17countries,including53.5̊CinPakistan.TemperaturesinMoscowinthesummerof2010were20̊Cabovenormal.Global temperatures reacheda recordhighfor2010,aspredictedbyclimatemodellers.

By contrast, solar activity this decade is reportedtobeatanunusually low level.Theglobalaveragetemperatureriseof0.4̊Coverthepasttwodecadescanbesafelyattributedtotheriseingreenhousegas(GHG)levelsintheearth’satmosphere–largelyduetouseoffossilfuelsandtocontinuingdeforestation,assetoutbytheIntergovernmentalPanelonClimateChange(IPCC)intheirlatestreport.

Theneed forurgentpolitical action tomanage thisexistential threat toourglobalcivilisationcouldnotbeclearer.

TheConferenceofParties(COP)roundsoftheUnitedNationsFrameworkConventiononClimateChange(UNFCCC) in 2010 in Cancun concluded with the‘Cancun Agreements’ which represents the bestoutcomepossibleunderthecircumstances.

The negotiations ended with an agreement thatconcreted and built on the Copenhagen Accord

produced at last year’s COP.However, despite therelatively good outcome, action is still a long wayfrom what is necessary to ensure global warmingdoes not continue to dangerous levels. Individualgovernmentsshould takemoreaction tocurb theiremissions.Urgencyneedstobere-injectedintothenegotiations.

Here we provide an appraisal of the UNFCCCprocessandananalysisofthevarietyofactionplans,atnational,regionalandinternationallevels,thatwillnowberequiredtoensuretheemissionsreductionssourgentlyneeded.

Thepaperisstructuredasfollows.

Chapter2examines theoutcomesof theUNFCCCnegotiationprocess in thecontextof thehistoryoftheclimatechangenegotiations.

Chapter 3 then addresses the outcomes of theCancunclimatechangenegotiations.

The key lessons that can be taken from thenegotiationssofararediscussedinChapter4.

Chapter5addressesthefutureandthestepsthatareneeded toprogress thenegotiationsandactiononclimatechange.

Chapter6reflectsonthepotentialparallelprocesesthatwillleedtoprogressinclimatechangeaction.

FinallyChapter7summarisesthekeyfindingsofthepaper.

Chap

ter1:TheScop

eoftheStud

y

Chapter1

The Scope of the Study


The International Climate Change Negotiations

Chap

ter2:TheInternationalClim

ateChangeN

egotiations

History of the Negotiations

TounderstandtheimplicationsoftheoutcomesfromCancun, it is necessary to put the conference andwhatitwasintendedtoachieveinperspective.

TheproblemofclimatechangewasbroughttolightataninternationallevelbythefirstIPCCAssessmentReport in 1990 which highlighted the issue as asubject in need of a political platform. The IPCCwas created in 1988 by the World MeteorologicalOrganisation and the United Nations EnvironmentProgram to provide a review of the consensusscientificviewonthesubject.

The findings of the IPCC spurred the beginning oftheclimatechangenegotiationsin1991whichhavesincedevelopedinessentiallythreestages.

Initially, climate negotiations acted to establish aframeworkofgovernance.ThistooktheformoftheUNFCCCwhichwas adopted in 1992 and enteredintoforcetwoyearslater.

Followingthis,negotiationsproceededtosetuptheKyotoProtocol;thisbeganin1995,in1997theKyotoProtocol was adopted, and the stage concludedin 2001 when the detailed rules for the Protocol’simplementation were finalised in Marrakesh at theseventhCOP.

The Kyoto Protocol set up emissions reductiontargetsfor37developedcountriesandtheEuropeancommunity,thisgroupofcountriesbeingreferredtoundertheKyotoProtocolasAnnexBcountries(AnnexIundertheFCCC).Theindividualemissionstargetswere intended to reduce emissions by developedcountriesby5percentagainstthe1990levelsover

the5-yearperiodof2008-2012.Notargetsweresetfordevelopingcountries.

Inaddition, theKyotoProtocolestablishedmarket-based mechanisms to help countries reach theirtargetsinacost-effectiveway.Themajorinstrumentsare theEmissionsTradingSchemes (ETS), inspiredby the success of the SO2 trading schemes in theUS at reducing acid rain; the Clean DevelopmentMechanism(CDM);andJointImplementation(JI)[3].

Currentlythenegotiationsareinthethirdstage:theformationofpolicyforthepost-2012periodwhentheKyotoProtocol’sfirstcommitmentperiodends.

These negotiations have proceeded along twotracks.Thefirsttrack,knownastheAdhocWorkingGrouponFurtherCommitments forAnnex IPartiesunder theKyotoProtocol (AWG-KP), is intended tonegotiateimprovementsintheKyotoProtocolandasecond set of emissions targets. This track coversonly thedevelopedcountries signedup to the firstcommitment period of the Kyoto Protocol (not theUS).

The second trackwas launchedby theBali ActionPlan to work on an ‘agreed outcome’ under theUNFCCCandisknownastheAdhocWorkingGroupon Long-Term Cooperative Action (AWG-LCA).This includesnegotiationsonmitigationactions fordevelopedcountries,nationallyappropriatemitigationactions (NAMAs) by developing countries, financialarrangements,adaptation,technologytransferandasystemformonitoring,reportingandverification.

Therehasbeenmuchdebateabouttheformoftheagreement for the post-2012 period, principally,whether or not it should take the form of a single

Chapter2


instrumentthatwouldreplacetheKyotoProtocolortwo instruments, one to extend theKyotoprotocolandtheotherundertheUNFCCC.

Therearedivisionsamongcountries,withdevelopedcountriesgenerallypreferringasingleinstrumentanddevelopingcountriesfavouringtwoinstruments[3].

So far the current phase of the negotiations hasbeenunsuccessfulinitsaimtoproduceanewlegalinstrumentfortheperiodbeyond2012.Despitesomeadvancesmade inotherareastheglobal legaldealremainselusive.In a very important sense, the Kyoto process canbedeemeda failure. Theoriginal objective, for thedeveloped(Annex1)nationstoreduceemissionsby5percentbelow1990 levelsby2012,althoughfartoomodest tohaltglobalwarming,willnotbemetwithouttheuseofthecompliancesystem.

OvertheperiodsincetheadoptionoftheUNFCCC

thousands of negotiators, meeting at least twicea year, have formed themselves into a negotiatingcommunitywhichisunabletomovewiththetimes.Since 1992 the science of climate change hasbecome considerably more sophisticated, and theneedtodefossilisetheglobaleconomybythemiddleofthetwenty-firstcenturyhasemerged.

Sincethattime,too,agroupofnationsrepresentingaverylargeproportionoftheworld’spopulationhasformedanewcategoryofemergingpowers.China,India,Brazil,Mexico,SouthAfricaandIndonesiacannolongerbeplacedinacategoryof ‘non-Annex1’countriestogetherwithEthiopia,Haitietc.AndCO2emissionsfromChinanowmatchtheUSattheheadoftheworldemissionstable.

Arguably, however, more progress has been madesince2000outsidetheUNFCCCprocess.

TheBritishGovernmenttookaleadingrolein2003,unilaterally declaring its intention to reduce CO2

Figure2-Timelineofclimatechangerelatedpoliticalactions.

emissionsby60percentby2050,and introducingits internal ETS in 2004. This was followed by theEuropeanUnion’sadoptionofanETSin2005.

In2005theUKGovernmentdecidedtoplaceclimatechangeatthetopofitsinternationalagenda,initiatedby an international conference on the impacts ofclimatechange,andfollowedbysuccessivemeetingsofG20 science, energy andenvironmentministers,allleadinguptotheG8meetingatGleneagles,withtheUKGovernmentinthePresidency.

Recognising the rising importance of the rapidlyemergingpowers,theheadsofstatesofChina,India,Brazil,MexicoandSouthAfricawereinvitedforthetopagenda item,climatechange, thuscreating theG8+5grouping.

Over subsequent years each head of state in thePresidencyoftheG8retainedtheG8+5formatandmaintainedclimatechangeastheleadagendaitem.

On thediplomatic front,SirDavidKingwas taskedbytheBritishPrimeMinisterin2003totravelwidelyabroad to speak on the importance of managingglobalwarming,deliveringaround70lecturesayearforthefollowing4years, includingmanyaddressestoparliamentsanddiscussionswithheadsofstate,governmentministers,andbusinessleaders.

The British Foreign Office expended considerableresource on raising the profile of climate changein key embassies around the world – includingmore than 20 experts in the Beijing Embassy.Most noteworthy, perhaps, was a Memorandumof Understanding reached between the British andChineseGovernmentswhichenabledaBritishteam,assembledbySirDavidKing,toworkwithaChineseteam on climate change flood risks in the Yangtzebasinarea,includingShanghai.

TheBritish teamhaduseddetailedclimatemodelstoexaminefloodrisktotheUKoutto2080,andhadproducedanactionplanfortheUKtoadapttotherisks[4].

The future risk to the Chinese economy from acombinationoffluvialfloodingdowntheYangtzeriverandrisingsealevelshighlightedthecriticalthreatofclimatechange toChina’s futureprosperity [5].TheChinese politburo clearly took a decision in 2006

to reduce China’s dependence on fossil fuels andtopushhard in internationalnegotiations forglobalaction.Theirparticularconcernwastheobstructiveposition of the Bush administration. The red liningofdraftagreementsintheG8+5processbytheUSsherpasoverthisperiodwasthemajorblocktowardsfurtherprogress.

WiththeEuropeanETSinauguratedin2005,anewfactor emerged.As thisnew tradingmarket inCO2

wasestablishedinLondon,thefinancialcommunityand the business community became engagedin the issue of global warming, with importantconsequences.TheCEOsofmanymajorinternationalcompanies became champions of the need foractiononclimatechange.Thiswasaveryimportantmessage for thepoliticians.Amajor section of thebusinesscommunitywasurgingaction.

In addition, the number of pieces of legislation onclimate change at a national level have increasedconsiderablyinthepastfewyears.Whilstnegotiationsat a global level appear to have stalled, action atnationallevelisprogressing.Theamountofactionatthisnationallevelshouldberampedupoverthenextfewyears.

Chap

ter2:TheInternationalClim

ateChangeN

egotiations

Chapter2Chapter2


Chapter3

Copenhagen and Cancun

Chap

ter3:Cop

enhagenandCancun

The Cancun Outcomes in Context

Theoutcomesof the lastCOPatCancuncanonlyreallybeunderstoodinthecontextoftheCopenhagennegotiations. This is for two main reasons; first,the Cancun Agreement is largely based upon thekey elements of theCopenhagen Accord. Second,the reaction to theAgreement is largelydue to thedifferences in build-up between the Copenhagenand Cancun negotiations and the disappointmentthat resulted from the outcomes of Copenhagen.While the actual outcomes of the two conferencesare not substantially different, the reaction to thatofCopenhagen inmost caseswasoneof extremedisappointment.TheoutcomefromCancun,on theotherhand,hasbeenheraldedasaveritablesuccess.

Therewerenotabledifferences inbuildupbetweenthe two COP meetings. Prior to the Copenhagennegotiations,expectationsinthemediawereraisedto an impossibly high level. Copenhagen wasthereforeperceivedbymanyasa failure.Curiously,many people (outside themedia) could see clearlyin advanceof themeeting that a fully-formed legalagreement would be unrealistic, the negotiationshaving failed to progress at the rate necessary toproduceanydecisiveagreement[6].

Butthemediabuiltupfalseexpectationsnotinanywaydampenedby the absenceof amuch-neededsense of realism from the UNFCCC, or from theDanish Government. With a record attendance ofNGO representatives and researchers, the circusatmospheredidlittletodouseexpectations.

Despite this, the negotiators did make someproductive advances; instead of a legally-bindingagreement, the Copenhagen conference producedtheCopenhagenAccord,apoliticalagreementwhich

wasnegotiatedby28countries in thefinaldaysoftheconference.

But the failure of the Copenhagen conference toproduce a legally-binding agreement led someto question the UNFCCC as a forum for decisionmaking. Many negotiators left Copenhagen with asensethattheUNFCCCprocesswasbroken[3].

All this did little to build expectations for Cancunandas suchanticipation for theoutcomewas low.TheCancunAgreementthatemergedfromtheCOPmeeting in comparison was therefore a pleasantsurprise for those who had been following thenegotiations.

The Cancun Agreements

The Cancun Agreement is based heavily upon theCopenhagen Accord and the pledges made to itfollowingtheCopenhagennegotiations.

TheCopenhagenAccordmarkedanunprecedenteddrafting exercise on climate change, but, at onlyaroundtwoandahalfpages,containedonlytwelveoperationalparagraphs.As thiswouldsuggest, theAccord was not strong on detail but representedmanydelicateandhard-woncompromisesbetweencompetinginterests[7].

When the Accord was being negotiated however,othercountrieswerenotkeptinformedoftheprogressofthenegotiatinggroupandtheCopenhagenAccordnegotiations were conducted separately from theofficial UNFCCC negotiating groups. When theAccordwasrevealedtotheCOPforadoptionasmallnumberofstatesblockedconsensus.Asaresult,thelegal status and future of the Copenhagen AccordwithintheUNFCCCprocesswasunclear[8].


The Cancun Agreement, by incorporating many ofthekeypointsoftheAccordintotheofficialUNFCCCprocess,hasclarifiedthis.

The Cancun Agreement does more than justincorporatethekeyideasoftheAccordhowever; italso elaborates themandmakes themoperational.Thetwoandahalfpageshavebeenuppedtothirty.The Cancun Agreement integrates and elaboratesonallofthemainpartsoftheCopenhagenAccord,including:

AgreedLimittoTemperatureIncrease–SharedVisionThe 2°C limit to temperature rise was recognisedand the scientific reasoning for this. The CancunAgreementalsoagreesthatdeepcuts inemissionsare necessary to achieve this.Roomwas left for achangeinthislimitof2̊Ctoalowerlimitof1.5̊Caspartofa reviewof theAgreement’s implementationtobecompletedby2015.This is ina largepart indeference to the Maldives and other small islandstateswhichhadpushedfora1.5 ̊Climitonglobaltemperaturechange.

Mitigation

The Copenhagen Accord established a bottom-up pledge-and-review process that allowed eachcountry, both developed and developing, to defineits own mitigation actions, including developedcountryemissionstargets.Thesetargetsandactionswere to be submitted to the UNFCCC Secretariatfor compilation. 76 countries, including all Annex Iand39non-Annex Icountries,submittedtargetsoractionstotheSecretariat.Thesecountriestogetherrepresented85percentofglobalemissions.ThesesubmissionswereincludedintheCancunAgreementviatheirinclusionintwoinformationdocuments;onefordevelopedcountrytargetsandonefordevelopingcountry actions. Whilst this does not make themlegally binding it does integrate them into theUNFCCCprocess.

A registry fordevelopingcountries to list nationallyNAMAs for which international support is sought,proposedintheCopenhagenAccord,wassetupbythe Cancun Agreement. These supported NAMAswillthenbesubjecttointernationalconsultationandanalysis(ICA).

Finance

In the Copenhagen Accord it was established thatdeveloped countries would collectively commit toprovidingnewandadditionalresourcesapproachingUS$30 billion in ‘fast start’money for the 2010-12period, to be balanced between adaptation andmitigation for leastdevelopednations.ThisamountissettoincreasetowardsUS$100billionperyearby2020. This has been incorporated into theCancunAgreement.Inaddition,theAccordalsocalledforthecreation of aGreenClimate Fund throughwhich asignificantpartof thefinancewouldbe transferred,andaHighLevelPaneltoidentifypotentialsourcesof revenue to meet the US$100 billion per yeartarget [3]. These calls were answered in Cancun.As established in theCancunAgreement, the fundwill be managed by a board of 24 members, splitbetween developed and developing countries, andwill beadministered for thefirst three yearsby theWorldBank.TheCancunAgreementalsonotesthepledgesofadaptationandmitigationfinancepledgedto theCopenhagen Accord. At the time of writing,thisamountstoatotalofUS$27.9billion.

Forestry

At the Cancun negotiations progress was madeon forest carbon. Building on statements made intheCopenhagenAccord, a framework for reducingemissionsfromdeforestationandforestdegradationaswellashaltingandreversingforestloss(REDD+)was established. The Cancun Agreement providescountries with guidance on REDD+ readiness andrecognises and sets out a phased approach forimplementation.Therearestillseveralkeyquestionsleftforclarificationinfurthernegotiations;definitionsandreferenceemissionlevelsneedtobeclarifiedinadditiontoquestionsregardingfinance.

Adaptation

TheCancunAgreementsetforthdetailedprovisionsonadaptationintheCancunAdaptationFrameworkand creates an associated Adaptation Committee,taking further the declarations in the CopenhagenAccord which recognised the need for adaptationto both the adverse effects of climate changeand the potential impacts of response measures.The Agreement also establishes a TechnologyMechanismtofacilitatetechnologydevelopmentand

transfer.ThisTechnologyMechanismismadeupoftwoparts,oneofwhich isoperational immediately;the Technology Executive Committee. The secondpart, the Climate Technology Centre and Network,requiresfurthernegotiationsbeforeworkcanbegin.

Monitoring, Reporting and Verification (MRV)

The Cancun Agreement built upon previous MRVguidelines and established a new standard fortransparency; all major economies are to reporton progress in meeting their national climatetargets and actions on a more frequent basis.National communications and inventories will nowbe produced at least every four years by all largeemitters in addition to biennial update reports ontheirGHGemissions.Inadditiondevelopedcountriesare toenhance their reportingofanysupportgivento developing countries. Developing countries’reporting on their mitigation actions was alsostrengthenedwithsupportednationalactionsbeingsubject to ICA.This ICAprocess for thesupportedNAMAswillbeconductedbytheSubsidiaryBodyonImplementation.

Legal Form

The Cancun Agreement, like the CopenhagenAccord,doesnotcovertheissueofthelegalformofthepost-2012climateregime.ItpostponesdecisionsonthisissuetonextyearatCOP17inSouthAfrica.

Implications of the Negotiations

The most notable aspect of the negotiations inCopenhagenand,toanevenlargerextent,inCancunisthefactthatatlastallofthemajoremittingnationshave begun to seriously engage in the climatechallenge. This is an essential and highly positiveresult.

Theadoptionofthe2 ̊Ctargetshowsthatattentionis being paid to the science of climate change. Inadditionthepoorestnationsoftheworldaremakingtheirpresencefelttoalargerextent.Forexample,theAfricannationsprotestedbywalkingout enmassewhentheyfearedtheKyototreatywasabout tobeabandoned at Copenhagen. In addition, the small-island states, notably theMaldives and Tuvalu, areincreasinglyvocal[9].Thisisclearfromtheinclusionof1.5̊Casapossiblelimittotemperatureriseinthe

CopenhagenAccordandCancunAgreements.

Thechangingworldpowerdynamichasbeenmoreapparentinthenegotiationsinrecentyears.Reflectingits emergence as a global power, China is muchmore assertive. In addition, India took on a muchmoreconstructive role in thisyear’snegotiationsatCancun.

Fractureswithin thedevelopingcountrynegotiatingbloc (the G77) were more apparent [3]. OtherdevelopingcountriesareputtingincreasingpressureuponChinatoacceptlimitsonitsemissions.

The Copenhagen Accord and Cancun Agreementmark the first occasion that the rapidly emergingeconomies and the US have put forwardmitigation actions and have accepted any type ofinternationalisationoftheirclimatechangepolicies.Inaddition,itisthefirsttimethattheemergingeconomycountries,suchastheBASICcountries(Brazil,SouthAfrica,ChinaandIndia),agreedtoanyinternationalconsultation or analysis concerning their emissionsreductionactions.IndiawasparticularlyprogressiveonthisissueattheCancunnegotiations.

These developments are very positive in terms ofbreakingdownthe‘firewall’betweendevelopedanddevelopingcountriesandinrecognisingthechangingglobalpowerstructure.

With regard to the funding pledged by developedcountriesforadaptationandmitigationmeasuresindevelopingcountries,thefaststartsumof$30bnfortheperiodfrom2010to2012issimilartowhathadbeenpromisedby theEUand theUSearlier in thenegotiations.

The more important figure of $100bn per year by2020 promised to developing countries is morein question. This money is to ‘come from a widevariety of sources, public andprivate, bilateral andmultilateral,includingalternativesourcesoffinance’.Whilethisamountisinlinewithestimatesofthetypeofsumsthatarerequired [10] it isunclearhowthismoneyistoberaised.

Experience from the past makes it clear that it isnotpoliticallyfeasibletotransfersuchlargesumsoftaxpayers’moneytothedevelopingworld.Itisevenmore unlikely at present with developed countries

Chapter3Chapter3

Chap

ter3:Cop

enhagenandCancun


feeling impoverished due to the recession. At thepresent time sovereign debt in some developedcountrieshasreturnedtothepostSecondWorldWarlevelofaround120percentofGDP,whichmakesacashflowofthismagnitudeveryunlikely.

Amuchhigher levelofpublicengagementwith theissueofclimatechangeandagreaterawarenessoftherisksposedwillbeneededforgovernmentstobeabletocommittosuchamounts[11].

Analysis of Current National Targets and Actions

AnalysesbyUNEPandtheWRI,amongothers,havesuggestedthatthepledgesmadetotheCopenhagenAccord,nowadoptedunder theUNFCCCprocess,together are – conditional on various assumptions– probably not sufficient to ensure that the globalmeantemperaturedoesnotriseabovethe2 ̊ClimitestablishedintheAgreement.

At present it has been estimated that the currentpledgesequatetoagreaterthan50percentchancethat warming will exceed 3 °C by 2100 [12]. TheAnnexIpledgestogetherwill,ifimplemented,resultinareductioninemissionsfromdevelopedcountriesby2020of 12-19per centbelow1990 levels. Thisfallsshortoftherangeofemissionsreductions(25to40percent)thattheIPCCstateswouldbenecessaryto keepwithin the 2 ̊C temperature increase range[13].JapanandNorwayaretheonlytwodevelopedcountriestomakesufficientpledges:of25percentand 30-40 per cent below 1990, respectively. TheEUhaspledgeddeepercuts,of30percent,shouldothernationssignuptoaglobaldeal.

TheUShaspledgedtoreduceemissionsby17percent below 2005 levels by 2020. This equates toaround3percentbelow1990levels–lessambitiousthan the reductionsof theKyotoProtocol.Canada,byaligningitselfwiththeUS, istheonlycountrytoweaken its ambitions by increasing its emissionsallowancesrelativetothoseitagreedtointheKyotoProtocol.

TheCopenhagenAccordmarked thefirst time thatsomedevelopingcountriesvolunteeredtoundertakeemissionsactions.Indonesiawasthefirstnon-AnnexI country to pledge its commitments. Indonesiahas pledged emissions cuts of 26 per cent from

currentlevelsby2020increasingto41percentwithassistance.Chinaand Indiahavepledgedemissionintensity reductions of 40-45 per cent and 20-25per cent relative to 2005 by 2020, respectively.These pledges from the group of rapidly emergingeconomiesemphasize theneed todifferentiate thisgroupfromthepoorerdevelopingnations.

Onthepositivesidethesepledgesrepresentaverysignificant shift beyondboth thebusiness-as-usualscenario and the original protocol position. Theymarkasignificantstepforward.Whattheseanalysespoint out is that these commitments on emissionsreductions will over the coming years need to beratcheteduptomeetthe2̊Criselimitation.

It is relevant to recall that theMontrealProtocol of1987,requiringcountriestoreduceCFCemissionstomanagethedestructionofozoneinthestratosphere,was quantitatively insufficient for the intendedpurpose.SubsequentlytheCFCemissionsreductionprogramme was very substantially improved, andthe ozone reduction problem has been managed.As new low CO2, energy efficient economicallyviable processes and technologies are developedanddispersed,and theeconomic risksattached toclimatechangebecomemoreapparent,thereisgoodreasontobelievethatthesamewillhappenwithCO2emissions.

Assessment of Key Pledges

As the submissionsmadewere decided upon at anational levelby individual countries it is likely thatthetargetsputforwardarerealisticandwillbemet.However,itcouldbeusefultoassesshowambitiousor feasible the emissions-reductions targets are.Herethesubmissionsofthemajorthreeemittersareassessed;theUS,theEUandChina.

China

As the largest emitter of CO2 in theworld,China’sactions towards climate change are particularlyimportant. China has pledged to reduce its CO2emissionsperunitofGDP(‘emissionsintensity’)by40 to45percentby2020comparedto2005.Thistarget ensures that emissions are limited withoutconstrainingeconomicgrowth.

WhenexaminingChina’spastemissions it is found

that from 1990 to 2005 the carbon intensity of itseconomy improved by 36 per cent without anyinternational commitments. China’s pledge hasthereforebeenseenbysomeassimplyacontinuationof current trends [14]. However, the outcomes oftheseassessmentsalldependuponwhatisincludedin the baseline. When other nation’s pledges areconverted toasimilarmeasure, i.e. intensity, ithasbeenfoundthatChina’stargetiscomparabletothatofdevelopedcountriessuchastheUSandtheEU[15].

China’s pledge also included other actions; toincrease the share of non-fossil fuels in primaryenergyconsumptiontoaround15percentby2020,and actions of re-forestation. China is currentlyleadingtheraceingreentechnology.In2009Chinahad the greatest aggregate investment in cleanenergy, with investment levels of US$34.6 billion.ThisisincomparisonwithaninvestmentofUS$18.6billion fromtheUSwho rankednumber two [16]. Ithas the world’s largest manufacturing capacity forsolarcollectorsandsolarcellsand is likelytosoonreachthesamestatusforwindturbines[17].

Most remarkable is their reforestation programme.The Loess plateauproject, initiated some12 yearsago, has resulted in the greening and reforestationof an area the size of Belgium. In the run-up toCopenhagenPresidentHu Jintao committedChinatocompletingthetaskby2020:thiswillcorrespondto an area the size of France, and will be a trulyremarkableandexemplaryachievement.Chinahaspledged to increase forest coverage by 40 millionhectaresandforeststockvolumeby1.3billioncubicmetersby2020from2005levels[18].China’sclimatechangepolicieswillprovidesignificantemissions reductions compared to a business asusualscenario.Theenergyefficiencyandrenewableenergy being developed mean that the electricitynetworksinChinawillhavetobemodernisedtobeable to integrate these intermittent energysources.Inorder forChinatomeet its targets itwillneedtointensifyitseffortstomakestructuralchangesinitseconomyandincreasetheservicesectorshare[19].

Figure3-Conceptualdiagramshowingtheeffectsofmovingfroma20%emissionsreductiontargettoa30%targetonEuropeanGDPandunemploymentrates,baseduponGEM-E3simulations.Source:AdaptedfromJaegeretal.2011

Chapter3Chapter3

Chap

ter3:Cop

enhagenandCancun


The EU

The EU has pledged a target of 20 per cent GHGemission reductions by 2020 compared with 1990levels,whichwillbeincreasedto30percentifothermajor economies commit to significant reductions[20].

Theglobaleconomicrecessionhasledtoasignificantfall in emissions compared with business-as-usualexpectations,whichhasassistedtheEUinmeetingitsobjective.TheEUETSwillclearlyplayasignificantroleinachievingitsgoals,butinadditioneachofthe27nationscomprisingtheEUwillneedtointroduceobligations and regulations required to meet thenationalobjectives.

Aconsiderablescalingupoftheeffortwillberequiredtoimprovetheenergyintensityoftheeconomyandthe carbon intensity of the energymix. As pointedout elsewhere [9], the objectives for 2020 shouldbesetwithinanoverall target for2050, so that foreach country within the EU large-scale energyinfrastructure, such as coal-fired power stations,are replacedwith energy efficient, lowCO2energysystems, as they come up for renewal but notbefore,soastominimisethepotentialforanadverseimpact on the economy. In theUK the opportunityis immediate, since about £200 billion worth ofenergy infrastructurewill need to be replaced overthe coming decade [21]. This infrastructure will beproductive until mid-century and beyond, and willneedtobefitforadefossilisedeconomy.

Due to the impact of the financial crisis upon thelevels of CO2 emitted by the EU, themove to themore ambitious target of 30 per cent emissionsreductionsby2020isbeingconsideredirrespectiveoftheactionsofothercountries.

A recentstudyanalysing theeffects that thiscouldhaveonGDPgrowthandemploymentratesproducedthe surprising result: increasing the ambition couldhaveapositiveeffectonbothofthesefactors.Thelower 20% target is no longer strong enough tomobiliseinvestmentandinnovationinthelowcarboneconomy. If a decisivemove to a 30% target wasmade,combinedwithclearpolicies,apositivecycleofincreasedlow-carboninvestment,jobcreationandinnovationcouldbetriggered.

Withoutrequiringfurtheractionfromotheractorsontheinternationallevel,itwasfoundthatthismovetoa30%targetcould increase thegrowth rateof theEuropeaneconomybyup to0.6%peryear,createup to 6 million additional jobs, increase Europeaninvestmentsfrom18%to22%ofGDPin2020andincreaseEuropeanGDP in 2020by $842bn (2004value)[22].

Figure3 showsa conceptual diagramof the effectofthisincreasedambitionleveluponEuropeanGDPandunemploymentlevels,basedontheoutcomesofGEM-E3modelsimulationsconductedbyJaegeretal.(2011).

The US

TheUSpledgedanemissionsreductionstargetof17percentby2020relativeto2005levels.Thisamountequatestoa3percentdecreaseby2020comparedto1990levels.Thisislessthanthetotal5percenttarget of the developed countries in the Kyotoagreement.ThebiggestdownsideoftheUSpledge,however, was that the proposal stated that it wasbaseduponanticipatedUSlegislation[23],whichdidnotmaterialise. There is thereforegreat uncertaintyoverthefutureactionsoftheUS.Ofcourse,itwouldhavebeenunwiseforPresidentObamatocommittoanythingbeyondthis,riskingtheUSCongresslaterrejectingtheinternationalagreement.

ThepassageofclimateandenergybillsintheUSwillbe key to the development of climate negotiationsat the international level.While theUS energy andclimatepolicyendorsesacapandtradesystemandoutlinesapathwayofemissionsreductionsto30percentbelow2005levelsby2025,theUStargetsaredeemedtobedemandingforitseconomy.Profoundchangeswill be required, particularly regarding theenergy mix [19]. The US position in the processthereforegivescontinuedcauseforconcern.

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Chapter4

Learning from the Negotiation Process

Negotiations Forum

ThefailureoftheCopenhagennegotiationstoreachagreementthrewdoubtontheabilityoftheUNFCCCprocess to produce viable results; but the abilityofCOP16 inCancun to salvageanAgreementhasrestored hopes. However, suggestions that newforums for climate change debate are necessaryneed tobeseriouslyconsidered.TheG20,G8andMajorEconomiesForum(MEF)arepossible forumsforclimatechangeprogress.

Thesesmallermeetingsdohavepotential.TheG8+5groupingplayedavery important role in raisingtheprofileofclimatechangewithkeyheadsofstateandwiththepublic.TheG20countriesmakeuparound75 per cent of global emissions; any dealmade inthis forumwill clearly be of enormous significanceto potential reductions. Furthermore, nations havea tendency to follow trends, and the agreement ofsuchalargesectionoftheglobalcommunityislikelythereforetoleadtoothernationsfollowingsuit.

There is debate about whether agreements madewithin smaller groups of countries such as theG20 undermine the multilateral regime [24]. TheUNFCCCCOP is the only forum inwhich the verypoordevelopingnationscanbeheardandassuchthepoorerdevelopingnationsseetheUNastheonlyvenue open to them to express their views. Suchinput from least developed countries has alreadystimulated progress in some areas in the climatenegotiations; these nations have been instrumentalin ensuring that adaptation is properly considered.Assuchforbothsubstantiveandlegitimacyreasonstheprocessbywhichagreementsarereachedisveryimportant. Ghosh [24] argues that if decisions aremadeoutsidetheUNFCCCprocessthereare likelytobeconsequencesforthecoherenceoftheregime.

Themainblocktoagloballegally-bindingagreementthroughtheUNisthatneithertheUSnorChinaarecurrentlywillingtoacceptbindingtargetsthathavebeen internationally defined.Given that theG20ortheMEFcannotproducelegallybindingagreements,progresscouldbemadewiththesenationsinotheraspectsofclimatechangepolicy.Itmustbeacceptedthatnegotiationsinsmallergroupscould lead tomuchmore substantive outcomes inreaching themostpressinggoal – immediateGHGemissions reductions – if the groups don’t includeobstructionistcountriessuchasOPEC(OrganisationofthePetroleumExportingCountries)andtheALBA(BolivarianAlliancefortheAmericas)groupings.

While the equal voting system and the need forconsensusmaketheCOPanexcellentforumformanycountries, particularly developing countries, wheretheir voices are heard and for promoting equality,theneedforconsensusalsomakesitaproblematicforum for dealing with difficult, complex problemslike burden-sharing. The pursuit of consensus can,in practise, lead to stagnation [17]. Smaller groupsareveryuseful ingettingdetailsofanagreementinplace.ThisisnottoarguethattheUNFCCChasnoroletoplayintheclimatenegotiations.Itislikely,however,thatover thecomingyears itwill beused to verifyand legitimiseactionsanddecisions taken in theseotherforums,andtoactasasoundingboardforallnations.


Legal Form

Intherun-uptoCopenhagentherewasagreatdealofpressure for theconference toproducea legallybindingagreement.Copenhagenwasviewed tobeafailurebymanylargelyduetoitsinabilitytodeliveron this.AtCancun, therewasvery littlebuildup inthisrespectandalegally-bindingdealtoreplaceorcontinue the Kyoto Protocol was neither expectednor achieved. This outcome has been postponeduntilthenextCOPmeetinginSouthAfrica.However,postponing decisions on thiswill not be an optionagaingiven that thefirstcommitmentperiodof theKyotoProtocolendsin2012.

Is a legally binding document essential? Fromthe view point of developing countries, a legallybindingagreementisseenasanassurancethatthedevelopedworldwillmeet its targets. Furthermore,ifalegallybindingagreementisnotagreedthenthedeveloped world will effectively be weakening itscommitments to reducing emissions, while, at thesametime,developingcountriesarebeingrequiredtodomore.Thus,thenegotiationsappeartosometobemovingawayfromthe‘differentiatedresponsibilities’betweencountries,anaspectoftheclimatechangeregimethatisconsideredextremelyimportantbythedevelopingworld[25].

Inaddition,aglobaldealisneededinordertopreventleakages of carbon from parts of the world whichdo not have carbon emission limits [9]. The mainhindrance to a global, legally-binding agreementis that China seems unwilling to accept a bindingagreement, and the inability of theUS to progressaction through its Senate and Congress and itsinsistence on “symmetry” between developed anddeveloping countries means that it is unwilling toacceptalegally-bindingagreement.

Meanwhile,otherdevelopedcountriesareunwillingtosignuptoanagreementthattheUSisnotapartof. Japan in particular at the Cancun negotiationsexplicitly stated that it would not accept a secondcommitmentperiodoftheKyotoProtocol,displayinga clear preference for a single instrument. Thissingle instrument was initially suggested with theobject of bringing the US on board, and otherdeveloped countries have expressed a preferencefor the replacement of the Kyoto Protocol by asingle instrument that captures the market-friendly

elementsoftheAccord.IndeferencetotheUS,thesingleinstrumentwouldhaveaflexibleapproachthatis tailored to national circumstance and allows fordomesticpoliticalconstraints.

However,followingthestrongstatementsfromJapanon this matter, developing countries respondedequally strongly in signalling their preference forthe continuation of theKyoto Protocol. Developingcountriesopposethesingle instrumentastheyfearthat thenew instrumentwouldalter thebalanceofresponsibilitiesintheclimateregime[25].GiventhedifficultieswithintheUSinjoininganyinternationallydefinedbindingagreement, it isquestionableas towhetherthesecompromisesinthesingleinstrumentwillmakeadifferencetoitsparticipation.Anotherimportant,ifnotcritical,considerationistheinabilityoftheUNtoenforceorpunishnationsthatmaybreakanyagreement.Gettingall theUNFCCCcountries to join a climate treaty whereby theyagree to limit theiremissionwouldbean importantachievement,but itdoesnotmeanthatnationswillkeeptoit.Thereluctanceofnationstojoinalegally-binding agreement unless they know that they canmeetitsstipulationsdoessignalthattheconceptistakenseriously.Butinordertoensurethatcountriesdokeeptotheirtargets, it isprobablynecessarytohavesomeformofenforcementmechanism.

At present, at least one nation is expected to beunable tomeet itsKyoto target.Greece isofficiallyrecognised by the independent ComplianceCommittee as non-compliant with national systemrequirements and Canada is also set to be non-compliantwithitsemissionstargets(thoughitcouldbuyitselfintocomplianceby2015).That said, enforcementmechanisms such as trademeasures may act as a further deterrent to theUS, China and India joining in with an agreement.Sanctionsmayprove tobeeconomically inefficientand discriminatory against poorer countries [26]. Ithasbeensuggestedthattheuseofsocialsanctionsmaywellbepreferable[27].

One feasible enforcement mechanism is a ‘nameand shame’ process linked to pledge and reviewand independent monitoring and verification. Atpresent,focusingonforcingthroughalegallybindingagreementhasproventobeahindrancetoprogress

intacklingclimatechange.

AtCancun,theissuewasessentiallyputasideinthefinalagreementsanddecisionsonitpostponedforafurtheryear.ThisdidallowadvancestobemadeinotherareasthatwereintroducedintheCopenhagenAccord.ItremainsunlikelythatanythingotherthanaseverelyweakenedlegallybindingagreementwouldbesignedbythemajoremittersofCO2.ThefutureoftheKyotoProtocoldoesnotlookbright[6].

Inordertomakerapidandrealisticprogress,focusneeds toshift from form to function.Concentratingon creating a legally binding document will notproduce the desired action. Instead, negotiationsshould focus on areas where progress has beenmade. For example, real progress was made inthe areas of deforestation, technology, finance andadaptation.Concentratingandsolidifyingagreementontheseareaswillbeconsiderablymoreproductive.Inaddition,thepledgeandreviewprocessprovidesa critically important new pathway for immediateaction.

Pledge-and-Review

The pledge-and-review process adopted by theCopenhagen Accord marked a move towardsnational-basedaction inmitigatingandadapting toclimate change. This approach was cemented viatheintegrationofthevoluntarycommitmentsintotheUNFCCCprocessatCancun.

This shift away from the top-down action hasstimulated discussion about the relative merits oftop-down versus bottom-up approaches [28]. Inreality, both bottom-up and top-down policies arecompatibleandnecessary.

In developed and emerging countries the bottom-up approach is the only feasible way of ensuringparticipation.Thepledge-and-reviewprocessmarksausefulwaytostimulatenationalaction,andenablesChinaand theUS toparticipate.While the ‘review’part of the pledge-and-review system was largelyabsent, and in fact was steered away from by theBASICcountriesatCopenhagen,a largedegreeoftransparencyisembeddedinthesystem.

At Cancun progress was made in the area ofmonitoring and verification. Credit for this goes

largely to the Indian Environment Minister. Thepublicationofthepledgesraisesthelevelofambitioninthecommitmentsaswellasincreasingpressureonallnationstomeetthem[29].Itishopedthatnationalcommitmentswillthereforebemet.

AregistryfordevelopingcountriestosetoutNAMAsforsupportbydevelopedcountrieshasalsobeensetout. This is a useful tool as, at present, developedcountries have a tendency to hold back financeduetoscepticismover theenduseofsuchmoney[30].Inthisforum,developingcountriescansetoutspecificplansforactionsothatinvestorsknowwherethe money will be going, and this could stimulateincreased funding. It also challenges developedcountriesusingthisasalineofdefenceoverlackoffinancialsupport.

Temperature and Emissions Targets

Animportantstepwasmadewiththeagreementonthetargettolimitanthropogenicwarmingto2̊C.Thisisagood‘goal’.Oneofushaspointedoutonmanyoccasions, since 2005, that there is a high degreeof uncertainty in translating a specific limitationon an asymptotic figure for temperature rise to astabilisationtargetfigureforGHGemissions.

Forexample,iftheasymptoteforGHGatmosphericlevelsis450ppmCO2equivalent,thebestavailablescience produces a rather broad probabilitydistributionfunction[31]peakingat2.1̊Cbutwithaso-called‘fattail’tohightemperatures.EvenatthislowlevelofGHGs,thereisa20percentprobability– based on current science – that the ultimatetemperatureincreasewouldbemorethan3̊C.

The scientific message is clear: the risk of adangerouslyhightemperatureatanylevelabovethepresent(387ppmCO2;approximately420ppmCO2equivalent)isrelativelyhigh.GHGemissionsmustbereduced, inorder tomanage this riskdownwardatthefastestratethatcanbeachieved.PathstomaintainaGHGasymptotebelow450ppmCO2 equivalent were developed some years agoby the UK Government and one path to 550 CO2equivalent was published in the UK Government’sSternReport[32].

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Figure 4 shows the business as usual emissionstrajectoriespriorto2007(curvea,2007)andaftertheglobaldebtcrisis(curveb,2009).Trajectoriesarealsoshown for stabilisation at 550 ppmCO2 equivalent(curvec)and450ppmCO2equivalent (curvesd,eandf).

Curves d, e and f all represent pathways whichachievethesameobjective;stabilisationat450ppm.Thesecurvesdemonstratethatitisthetotalemissionsover the time period shown that determines theasymptote,not therateofemissions. It is thebuildupofCO2andotherGHG’sintheatmospherewhichcausesthetemperature torise.Asrecentlypointedout[33],itisthereforepossibletoestimatethetotalamountoffossil fuel (expressedasC)burnttoCO2thatwouldgenerateanestimatedmeantemperatureriseof2 ̊C.This is1 trillion tonnesof carbon,withastandarduncertaintyof1.6 to2.6 ̊C.Overhalfofthisamounthasalreadybeenemitted.(NotethatthisestimateexcludesotherGHGs).

The curves in figure 4 can be simply restated. In2010, global anthropogenic activity is resulting inthe emission of 36 bn tonnes of CO2 equivalent,as shown on the upper business-as-usual curve.Curveddemonstratesthatglobalemissionsshouldbe reduced to18bn tonnesby2050, i.e. a50percentdecrease.Taking18billiontonnesperannumasaveragedacrosstheexpectedpopulationof9billionbymid-centuryyields2tonnesperperson.

Basedonthisfigure,theUKGovernmentreviseditscommitmentofa60percentreductionby2050madein2003toareductionof80percent,madein2007.CurrentlyUKemissionsareat10tonnesperpersonperannum,sotheBritishcommitmentequatestoareductionto2tonnesby2050.This unilateral commitment, followed now by theEU, represents an interesting political and ethicalstatement. It suggests that the emissions targetper country by mid-century could be determined

bypopulationsize, andnotbydevelopment status(Annex I, non-Annex I; or developed, rapidlyemerging, and developing). This does provide apotentiallyequitableway forward,andwe return tothisinChapter5below.Corporate Sector Actions

The stance of the corporate sector is criticalin innovating market-facing solutions and indemonstratingtheeconomicfeasibilityofdefossilisingtheglobaleconomy.

There has been progress in this area; a significantproportion of the corporate sector has indicateda desire to be involved in moving towards a lowcarbon economy [34]. An example of this is theCarbonDisclosureProject,aprojectwhichholdstheworld’s largest database on corporate actions andinformationonclimatechange.

Initiatives such as this are voluntary and so theinformationputforwardisnotverifiable.However,itisagoodfirststep.Tomovetheseprojectsonwouldrequirecomplianceandreviewsystemstobeputinplace.

Governments should act to incentivise the privatesectortomakethetransitiontothegreeneconomy.Regulations should be put in place to encouragelong-term thinking in the corporate sector thatwill incorporate climate change mitigation andadaptation.Long-termstabilisingpoliciesshouldbeputinplacetogivethesectorconfidenceininvestingingreentechnologyandinmakingthetransformationtoagreeneconomy.Thereisevidencetosuggestthataswitchtoagreeneconomycouldbeveryprofitableformanynations,sectors, industriesandfirms.The totalvalueof thecarbonmarketgrew6percenttoUS$144billionbytheendoflastyeardespiteglobalGDPfallingby0.6percentanddevelopedcountriesGDPfallingby3.2percent[35].

Ithasbeenestimatedthatby2020theworldmarketfor environmental technologies will have grown toaroundEURO2.2trillion[36]. Innovationcanleadtoeconomicgrowth[37]bydevelopingnewindustriesandcreatingnewemployment.IntheUK,thesectorsthatarelikelytobenefitfromatransitiontoagreen

economy, namely the finance and science basedsectors,arethosethattheUKexcelsin.Thetransitionislikely,infact,tobenefittheUKandUSevenifitiscostlytotheworldeconomyoverall[38].TheUKGovernmentSternReview[32]projectedthatpreventative action taken now to limit temperatureincreaseto2̊Cshouldbeexpectedtocostbetween-2percentand+5percentofglobalGDPby2050,(althoughthisiscommonlyexpressedas+1percent).

More recently, a study of the cost of Germanclimate changepolicy targets to reduceGermany’semissionsby40percentunder1990levelsby2020was undertaken using a systems dynamics model[39].ThisstudyfoundthattheGermantargetwouldcreateatleast500,000jobsandaddatleast2-3percent(EURO70billion)totheGermanGDPby2020.

These figures demonstrate the sensitivity of theoutputs to the nature and input of the economicmodels used [40]. The global financial crisishighlighted limitations in equilibrium economicmodelsthatareoftencurrentlyusedtoassesspolicyoptions [22]. These models can inherently excludewin-winstrategiesintermsofclimatepolicythroughthe assumption that there is a single equilibriumstatefortheeconomicsystem[22].Researchisnowbeingundertakentorectifythis.OneinitialoutcomeisthestudyontheEUtargetmentionedinChapter3wheretheincreasedambitionsincentivisedhigherinvestmentlevels,jobcreationandGDPgrowth[22].Whilemovingtoagreeneconomyislikelytogeneratea net benefit to economies, there will be lossesfrom some sectors, such as the fossil fuel sector[17]. At present, this sector represents a challengeto the acceptance of climate change policy (andscience)both ingovernmentand inpublicopinion.LastyearintheUSthelobbyseekingtoundermineclimate change science spent around US$170milliononlobbyingagainstclimatechangescience,whileonlyUS$22millionwasspentinsupportofallenvironmentalcauses.

Chapter4 Chapter4

Figure4-Predictedfuturegreenhouseemissionsaccordingtoseveraldifferentscenarios;trajectoryarepresentsthe2007business-as-usualpredictedemissions;bshowsthe2009business-as-usualpredictedemissionsfollowingtheglobaleconomiccollapse;cshowsanemissionstrajectoryenablingstabilisationat550ppmCO2equivalent;d,eandfshowthreedifferentpathwaystostabilisationat450ppmCO2equivalent.Note:Emissionsexpressedingigatonnesofcarbon,toconverttogigatonnesofcarbondioxidemultiplyby3.67.AdaptedfromUKDepartmentofEnvironment,FoodandRuralAffairs.

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technologyhaveenabledaccesstolargeamountsofnaturalgas.Ahigherfuturecarbonprice,throughacarbon taxora tradingscheme,will,ofcourse,beneededtoreduceGHGemissions.Itis,nevertheless,worth noting that recent studies [47] have beenincreasingly pessimistic about the abilities of coaltocontinuetomeetincreasingdemandovercomingyears.

Global Fossil Fuel Supply Capability

Energy and climate change are inextricably linkedthrough CO2 emissions from fossil fuels. However,it isworthnotingat thispoint thatevenwere therenot strong environmental reasons for switchingawayfromfossilfuelstorenewableformsofenergy,analyses of oil supply and demand demonstrate asecondincentivetotransitionawayfromoil.

Recentstudiesofglobaloilproductioncapacityhaveemphasised that conventional oil production willprobably go into decline soon, signalling the likelyend of low cost, abundant oil. A survey of reliableconventional oil reserve data found that the publicreservefiguresshouldbereducedfrom1150–1350Gbto850–900Gb[41].

Oil discoveries have been decreasing in the pastfewdecades,withthediscoveryratepeakingintheearly 1960s. In addition oil field production ratesfollow an approximate bell-shaped curve – oil fieldproductioncannotbemaintainedataconstantrateuntil resources are exhausted due to geologicalconstraints.

Oncepeakproductionhasbeenreachedtheaveragerateofdeclineinproductionisestimatedtobe4.07per cent pa [41]. A substantial portion of today’sproducingoil fields are currently indecline.Of 430giant oil fields that are in production 261 are indecline. In2007,outof20of the topproducingoilfields,representing27percentofglobaloilsupply,16wereinterminaldecline[42].

On top of conventional oil reserves, the world hasalargeamountofunconventionaloil(heavyoil,andoil fromshaleandtarsands).Therisingpriceofoilhas made extraction from unconventional sourceseconomicallyattractive.The resultof thishasbeenCanadian tar sands and deep-sea drilling comingincreasingly into production over the past decade.Unconventionaloilscurrentlymakeupjustover2%oftotaloilproduction[43].

The extraction of unconventional oil is bothenvironmentally damaging and energy and waterintensive. These factors alone could limit futureproduction. In addition, the rate of extraction ofunconventionaloil is currently very slowand, if thepeakofconventionaloilproductionisreachedwithin

the next two decades, it will not be able to meetincreasingdemand[44].

Given that demand for oilwill continue to increaseoverthecomingyearsduetoinertiainthetransitiontolowcarbontransportthesephysicalrestrictionsonsupplymayinduceaglobalrecession,determinedbyanunaffordablyhighoilprice.Itisurgentlynecessarytodiversifythesourcesofenergyproduction.Havingeconomiesthataredependentuponoilisnolongeradvisable[41].

All qualitative indicators point to substantial futureincreasesinoilprice.Inaddition,estimatesoffutureoilpricesare,overtime,increasing;theWorldEnergyOutlook(WEO)of2008[42]estimateof2030oilpriceis$135higherperbarrelthanthe2007WEOestimateof$65perbarrel[41].

The negative effects of increased oil prices on theglobal economy are substantial. The InternationalEnergy Agency (IEA) [45] carried out an analysisconcluding that over the period 2002 to 2006increasesinoilpricesloweredworldGDPgrowthbyanaverageof0.3percentagepointsperyear.Highoilpricesarelikelytohaveplayedaroleintheglobaleconomicdownturn in2008,acting to increase thevulnerability of the economies of all oil importingcountries[46].

There are other clear benefits in diversifying themeans of producing energy. The UK, for example,hasanexistingenergyproductioninfrastructurethatwill need to be renewedwithin the next ten years;ifgovernmentdecisionsareimplementedinatimelyfashion this energy infrastructure will be replacedby a combination of indigenous renewable energy,nuclear energy, dispersed microgeneration energysources,andasmartgrid,whileinitiatingtheswitchof road transport onto the grid through hybrid andelectricvehicles.TheUnitedKingdom is inaprimeposition to lessen its dependence on oil. This willalso act to stimulate the economy – finance thatwouldpreviouslyhavegonestraighttooilproducingcountrieswillremaininthecountryandjobswillbegeneratedfromtheswitch.

Theeconomicimperativetomoveawayfromcoalandgasislessstrong;thereappeartobevastreservesofverycheapcoalremaininganddiscoveriesofnaturalgascontinueapace.Developmentsingasextraction

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Pricing Carbon

It is generally agreed that one of the most usefultools in inducing action on mitigating emissions isthepricingofGHGemissions.Whilebyitselfpricingwill not be sufficient to tackle climate change, it isnonethelessakeypartofclimatepolicy.

The need to price environmental externalities isa basic lesson from environmental economics. Itsendsasignaltothemarketplacethatgovernmentsare serious in taking action on climate change,incentivises reductions in emissions, and drawsattention to the cost-effectiveness of investment inlow carbon infrastructure [48]. Importantly, a highprice incentivises the research, innovation, wealthcreationchain,developingnewenergyefficientandlow carbon technologies for the market. Setting aglobalpriceonCO2emissionswouldclearlypreventcarbonleakage.

TherearethreemainwaysofpricingCO2:CO2taxes,CO2 trading, and implicit pricing via regulationsand standards. Each of the three approaches hasdifferent advantages and disadvantages, and allthreearelikelytobeusedinsomeformatsomelevelofgovernment.

Regulation and Standards-Based Policies

Theseincludeefficiencystandardsforvariousgoods,vehicle fuel-economy standards and best-availablecontrol technology standards. While undoubtedlya useful mechanism, there are several drawbacksto using a regulation and standards approach toreducingemissions.

For example, regulatory standards are very oftenonlyappliedtonew,ratherthanexisting,equipment

Chapter5

whichlimitstheopportunityfornear-termreduction.Emissionswouldalsothereforebedependentontherateofcapitalstockturnover.Importantly,increasingthe cost of new stockwithout affecting that of theexistingstockmeans that incentivesarecreated tocontinue using the old, higher CO2-emitting stock,therebydelayingemissionsreductions[49].

Furthermore,intermsofcost-effectiveness,standardsandregulatoryapproachescannotcompetewithCO2trading.CO2 Taxes and Trading

Taxes and trading in the economists’ idealisedworldwouldprovidethesameresultsaseachother[50]. However, idealised conditions seldom occur.TaxeswillfixtheCO2pricebutleavethequantityofemissions uncertain and trading fixes quantity butleavespriceuncertain.Setting taxes too lowwouldleademissions toovershoot their target.AgloballyagreedCO2 tax thereforewouldoffer less certaintythanCO2tradinginmeetingadesiredtarget.BythesamelogicCO2tradingcanleadtomuchmorepriceuncertaintyandvolatilitythantaxeswhich,inaworldwherebusinessespreferclearandstablesignalsfordecision-makingandinvestment,isnotideal.

In either case, achieving a significant reductionin emissions requires a real commitment fromgovernments:iftheCO2capsforthetradingprocessare insufficient, the CO2 trading price will be toolow to induce effective action; and the argumentforgovernmentsimposinglowertaxesthanneededis even stronger. It is worth noting that the UKGovernment, noting the need to incentivise utilitiestoinvestinlowcarboninfrastructure,hasdecidedtointroduceafloortotheCO2price.

Next Steps


ConcernshavebeenraisedthattradinginCO2maycreateorreinforcepowermonopoliesandconstitutes‘carboncolonialism’ [35].Theseobjections indicatestrongadvantagesofmovingtoauctioningofpermitsor toother formsofpermitdistribution,suchasona per capita basis, as discussed in the followingsection.

Funding for Mitigation and Adaptation in Developing Countries

Oneofthebigissuesofclimatechangeisthatthosewhohavenotcausedtheproblemwillbethosethatsuffertheeffectsmost.Thecostsofclimatechangefor the less developed countries are estimated tobehigh.Furthermore,thelessdevelopedcountries,suchasmanyof theAfricannations,cannotaffordthehighcostsofmitigationandadaptation.

The least developed nations are often neglectedin climate change deals. In 2008, investment insustainableenergy indevelopingcountries reachedUS$36.6billion [35].Of thisamountAfricareceivedlessthan1percent.

There is a trend for investment from developedcountries to be concentrated in the countries withemergingeconomieswithindevelopingregions(seefigure 5). For example, in 2008, of the investmentin Asia and Oceania, China and India together

accountedfor80percent.InSouthAmerica,Brazilaccountedfor88percent[46].Todate,Africahostsfewerthan2percentofallregisteredCDMprojects.

Thereareseveralreasonsforthis.First,Africanandotherleastdevelopedcountriesmakeupaverysmallpercentageoftheworld’sGHGemissions.Thereforeinvestorshavefocusedonthe‘low-hangingfruit’ofhighemissionnations.

In addition, the majority of emissions savingsopportunitiesintheleastdevelopedcountriescomefromsmallerprojects,asdemonstratedbyfigure6.The costs of establishing a CDM project are highdue to the strict requirements and administrationprocesses.For smallerprojects these requirementsand costs make up a much larger fraction of theprojectcostsincomparisonwithlargerprojects.

Thereare twostrategies thathavebeendevelopedtoovercometheseissuesintheformoftheBundlingApproach and the more recent ProgrammaticApproach introduced in 2007. The latter wasintroducedinordertoovercomeissueswithBundlingApproachwhichrequiredveryhighlevelsofplanning

CO2 trading schemes have become the dominantformofpricingsincetheKyotoProtocol introducedmarketmechanismsasawayofreducingemissions.The markets have grown considerably since theformationoftheEUETSandlooksettogrowfurtherbothgeographicallyandinvolume.

In2008,theCO2tradingmarketswerewortharoundUS$120billionanditisestimatedthatwithinadecadetradingvolumescouldreachUS$1trillion.Thiswouldbesimilartotradingincommoditieslikeoil,gasandgold[50].

CO2tradinghasbeenadoptedinsteadofcarbontaxeslargelydue to itsappealingpoliticalcharacteristics.Current trading schemes start by distributingallocationsfreeofchargeandmovetoauctionsovertime.Thisappealstoindustryasitallowsforalessdramaticadjustmentthanatax.

However, free allocations based on historicalemissionshavesignificantdrawbacks.First,giventheconsiderablemarketvalueofpermits,freeallocationsimplygivinghighemitterssignificant‘windfallprofits’.This effectively rewards those that are responsiblefor (unknowingly) causing the problem. It can alsoincentivise increases in emissions in order to gainmorepermits.Such‘grandfathering’couldacttogivecompetitiveadvantagestoincumbentfirmsiftheygetlargeallocations;therebyreducingcompetition[51].

due to its inflexibility. The strict requirementswhenimplementingaCDMprojectrepresentanotherreasonthe majority of projects have been implementedin emerging nations; there is relativelymore safetyinvolved in investing inanemergingnationwiththeproven experience and technical skills to carry outtheproject.

The current international approach to climatemitigation and adaptation financing is insufficientas it lacksa functioningandpermanentsystem forresource transfer to developing countries. It largelydepends upon arbitrary contributions of grantresourcesfromgovernments’treasuries.Inaddition,the private financial flows as mentioned above donotmeettheclimateneedsofdevelopingcountries.Long-termandstableflowsofclimatefinancingthataresufficienttomeettherequirementsofdevelopingcountriesareunlikelytomaterializeinviewofthedirefiscalprospectofmostdevelopednations.

The Cancun Agreements sets out funding fordeveloping nations approaching US$30 billion for2010-12andmovingtoUS$100billionby2020.Thislatter figure is in the range of that estimated to be

Figure5-RegisteredCDMprojectsbyhostparty,totalnumber3195.(Source:http://cdm.unfccc.int)

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Figure6-Thelong-tailedemissionsreductioscurveforCDMprojects.Themajorityoftheemissionsreductionsopportunitiesintheleastdevelopedcountriesliewithinthetail.AdaptedfromUNEP2008[52].


overtheenduseofthemoneyonceithasbeenputforward.Thedevelopedworldseeksassurancethatthemoneywouldactuallygotowardsmitigationandadaptationactions[54].However,attemptstocontrolor monitor what the recipient government spendsclimate money on may be perceived to impingesignificantly on their democratic decision makingprocesses,aswithmanyconditionalaidsystems.

Given the uncertainties regarding the developedworld’s production of mitigation and adaptationfunding it is useful to consider alternative sourcesof finance. A new international approach must beintroduced to make sure that the accepted levelof climate stability is effectively achieved on timeandwiththeleastcost. Itmustalsoprovideanew,stableandcrediblefinancingsystemfordevelopingcountries which is decoupled from economic upsanddownsofdonorcommunity.CO2markets, inareformedform,areafeasiblemodelfordeliveringthefinancialflowstothedevelopingworldonthescalerequired.

Perversely, the current cap and trade systems actas an incentive to developing countries to emitCO2 to qualify. It should be noted that the leastdevelopedcountrieswill not alwayshave such lowGHG emissions; if the economies of the poorestdeveloping nations continue to develop along thehigh-carbonroutethentheywillcontributemoreandmoreinthefuture.AccordingtotheIEA[46],globalenergydemandispredictedtogrowby55percentby 2030. Just over 90 per cent of the increase intheenergydemandfrom2007to2030 isprojectedto come from non-OECD countries [52]. In the runup to 2030 the new energy supply infrastructurewill require investment of up toUS$26 trillion,witharoundhalfofthisrequiredindevelopingcountries.If the investments made are not directed towardsgrowth in climate-friendly technologies, emissionswill increaseby 50per cent by 2050 [10]. Itwouldlikely be far easier and cheaper for the developingworld economies to be incentivised to grow alonga low-carbon pathway, rather than attempting toconvertatalaterstageafterinvestinginhigh-carboninfrastructure.

A number of proposals for alternativemechanismsto the current international approach todevelopingcountry financing have been put forward over thepastfewyearsbaseduponavariationonthecurrent

cap-and-tradesystem.

InhisbookKyoto2OliverTickellproposesaglobalsystembased upon auctioned upstream emissionspermits[55].Inthissystem,greenhousegaseswouldbe regulated as close to the point of productionof the fuels themselves as possible. Permits torelease greenhouse gases would be auctioned inaglobalcapandtradesystem.Thecapswouldbeset annually at levels which have been calculatedtopreventdangerouslevelsofclimaticchange.Thefundsraisedbytheauctionprocesswouldbeusedto tackle the causes and result of climate change,inparticular theneedsofdevelopingcountriesandthosemostadverselyimpacted[55].

Mutsuyoshi Nishimura, a former climate negotiatorof Japan, and Akinobu Yasumoto, Executive Vicepresidentof theJapanMachineryFederation, havealso put forward a proposal based upon a globalcap and trade system. In this proposal, emissionsallowances are sold to emitting enterprises beforetheyburnfossilfuels.Theconceptofobligationstolower emissions is not a part of this proposal andgovernmentsarenotrequiredtomakeanyreductionefforts.Emissionswillbereducedasallowanceswillonlybegivenuptotheamountof660GTCO2–theamount it is estimated that canbeemittedwithoutpushingwarmingoverthe2°Cmark–overtheperiodof2010-2050.Thisperiodoftimecanbesplitintofourten year phases, for example asdisplayed in table1. Reducing the availability of carbon allowancesovertimewill increasethepriceandincentiviselowcarboninnovation.

As all CO2-emitting enterprises of the world buyallowancesfortheamountofCO2theyemit,theybeartheexpenseofthecarboncostinthefirstinstance.The carbon cost is then passed on to the price oftheir products, thus internalizing the externalities.

Householdsworld-wideeventuallydefraythecarboncostwhentheybuythoseproducts.Intheend,thecostofemittingcarbonispassesontothehouseholdsoftheworldwhoaretheultimatepollutersandshouldpayforthecarbonprice.

Theproposaloffersanewformofclimatefinancingby letting governments collectively earn newrevenue.Thiswouldbeusedtohelppeople,sectorsand countries in need and to promote investmentonbreakthroughtechnologies.Itwasestimatedthattheproposalcanyieldnew revenueof theorderof$500-600billionperannumassumingacarbonpriceof $25 per ton CO2. The distribution of revenueamongst governments must be negotiated andagreeduponcollectivelybygovernments.Acommonassumption is that governmentswill find it difficultto agree on howmuch climate financingwill go togovernmentAandhowmuchmore togovernmentB. Proponents of the proposal, whilst recognizingthe difficulties, believe that governments will mostlikely come to terms amongst themselves since itis senseless to renounce collective new wealth ofsubstantivemagnitude.Our Proposal

Herewepresentaproposalbaseduponavariationof thisglobalcap-and tradeconcept.Theproposalhasoriginsinthecontractandconvergenceprincipleas proposed by the Global Commons Institute intheearly1990s.Thisprincipledescribesatrajectorywhereby the overall emission level is reduced overtimewhilstthepercapitaemissionsratesofdifferentcountriesconvergeonalowvalueaimedatmeetingthe2°Cobjective.

This allows developing countries tomaintain someemissions growth in the intermediate phase,whichismadeupforbyadecreaseindevelopedcountryemissions. The overall amount emitted should notbe more than will cumulatively push temperatureincreases over 2°C. In the global cap and tradesystemweproposehere,emissionsaretradedbasedonapercapitaallocationofCO2tradingpermitsatsomefuturedate(2050isfavouredbymany).

ThepercapitasystemfunctionsbysettingaforwardtrajectoryforCO2emissionsperheadpernation,thisamountbeingthesameforallcountriesbythetargetdate.Thesetrajectoriescanbesimplycalculated,as

required in order for developing countries to dealadequatelywiththethreatofclimatechange[29].Therearethreekeyissueswiththisfundingstrategy.First, it isunclearwhere thismoneywillcomefromand whether it will actually be delivered. Second,how themoney is to be distributed is contentious.Third, ensuring the money is spent effectively willbe both difficult and likely to intrude on the rulinggovernments of the recipient nations, and hencesubvertdemocraticdecisionmaking.The developed world does not have a good trackrecord when it comes to delivering on moneypromised [53]. For example, developed countriesalready appear likely to fail tomeet theMillenniumDevelopment Goal targets of providing OfficialDevelopmentAssistance(ODA)of0.7percentGDPby2015.Thecurrenteconomicdownturnwillmakeitevenmoredifficultfordevelopedcountriestoraisethepublicfundsrequired.TherearefurtherconcernssurroundingtheUS$100billion formitigation and adaptation for developingcountries.Onemajorworry is that the fundswill infactnotbe‘newandadditional’butmaybedivertedor relabelled ‘development aid’. One issue thatunderlies this concern is that there is not currentlyaclearbaselineofcurrentclimateaid.ThevoluntarynatureofODAmakesiteasyfordonorstovarytheamountandnature(e.g.goodsandservicesinkind)depending upon political and economic situations.These programs for health, poverty alleviation andpromoting the rights of women and children alsoact to make communitiesmore resilient to climatechange[53].Intermsofthedistributionissues,therearescientificchallengestoclearlydefiningwhatrisksand lossesare additional due to climate change. Differencesin how vulnerability is defined would lead to verydifferent distributions of the funds. For example, ifit is defined biophysically then low-lying land suchas islandsanddeltas,droughtzonesandareasfedby glaciers would be most deserving, but shouldvulnerabilitybedefinedusingsocialfactorsthenthefundswould be distributed to the poorest ormostdensely populated regions. It has been suggestedthataninternationalcentreshouldbesetupwiththepurposeofidentifyingtheseadditionallosses[30].Thedevelopedworldontheotherhandhasconcerns

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Emission Phase Carbon Budget for 2°C

PhaseI(2010-2020) 250GT

PhaseII(2021-2030) 200GT

PhaseIII(2031-2040) 150GT

PhaseIV(2041-2050) 60Gt

Table1-Carbonallowancesof600GTCO2for2010-2050dividedintofour10-yearphases.


discoveryandproduction.

What isnow required fromgovernments isamajorstimulus to this cash-rich sector to encourage asignificant proportion of turnover into fossil-freeenergytechnologiesandalternatives,suchascarboncaptureandstorage(CCS).FromhispositionintheUKGovernment,in2001SirDavidKinginitiatedananalysisofthelevelofenergyresearch, public and private, in the UK. The resultwasstark.Withtheprivatisationoftheenergysectorin the 1980s, Europe’s largest gas and electricityRD&Dcentres,basedintheUK,werebrokenupandsharedoutbetweentheemergingutilitycompanies,andthencloseddown.TheleveloffundinginenergyRD&DintheUKhadthereforecollapsedtoaverylowlevel[59].

AsubsequentIEAanalysis[27]showedthatthiswasaninternationaltrend,withthelargestdecreaseintheareaofnuclearpowerRD&D.Facedwiththeobviousneed to rejuvenate research effort into low carbonenergy sourcesmeetingswere heldwith theCEOsof themajorUKutilities, and theoutcomewas theestablishmentofanewEnergyTechnologiesInstitute(ETI)intheUKasapublic-privatepartnership.

TheETIisa£1billioninvestmentover10years,halfthe fundsbeing raised from theprivatesector.Theideaistostimulateamuchbiggerandmorerealisticinvestment by the private sector into low carbonenergyRD&Dwithineachoftheirownorganisations.Energy companies, whether in the oil, coal orgas production sectors or as utilities, will need toreconfigure and transform their operations in ordertoremaincompetitiveoverthecomingfewdecades.This applies equally to oil and gas producingcountries,whereeconomicdiversificationwillbethekeytofuturedevelopment.

The formation of the ETI embodies recognition ofaway thatagovernmentcanmaximise funding forRD&D, by stimulating investment from the privatesector. The private sector has a larger capital poolavailable for investment than thepublic sector; theenergysector isworthgloballyaround3 trillionUSdollarspa.Theprivatesectorhastobeincentivisedto invest optimally in RD&D given “knowledgespillovers” that imply theycannotcaptureallof thereturns;andgovernmentshavetodemonstratethat

theywillbenefitfromincreasedfundingforRD&D.

Theeconomicpay-offforincreasesinRD&Dcanbeveryhigh.ArecentstudyofenergyRD&Dprogramsfoundthataverylargeproportionofthemproducedpositive net economic gains as well as bothenvironmentalandsecuritybenefits[60].

There is, however, a tendency for companies tomakeshort-sightedinvestmentsinordertomaximiseprofit immediately. Government policy should actto encourage long-term planning in private sectorinvestment decisions. Public funds should bestrategically invested so as to increase spendingfromtheprivatesector.

There are some areas of RD&D that would beimportant to focus on. Globally, coal reservesare abundant and low cost; one area with a largepotential for emissions reductions will therefore bein CCS for coal. A competitive source of electricpowergenerationwithloweremissionslevelsisalsoan importantareafor further research;optionshereinclude direct solar, hydrogen power and storage,nuclear power, solar photovoltaics and wave andtidal power. A focus of RD&D on energy efficiencygainswillacttocounteranyincreasesinthecostofenergyproduction,andsostimulategrowth.Thiswillinturnleadtomoreopportunitiesforinnovation.

Forestry Carbon Sequestration

Recent estimates suggest that forestry couldcontribute an average 6.7 billion tons of emissionsreductions annually, with over two-thirds of thispotential coming from tropical nations. Making fulluseoftheforestcarbonsinkisappealingtoboththedevelopedandthedevelopingworld.

Developednations see forest carbon sequestrationas a low-cost option formitigating climate changeandmeetingcommitmentsforreducednetemissions.For the developing world, forest carbon paymentscouldprovideasustainablesourceofmuch-neededincome.

AtthemostrecentclimatenegotiationtalksinCancunthepartiesagreedonaframeworkonforestcarbon.The lack of political opposition to an agreementon forest carbon, along with its large potential forreducingemissions,meantthatitwasakeyareain

inChapter4,giventheestimatednationalandglobalpopulationsinthefutureandtheamountofCO2thatitis‘safe’forustoemittostayunderatemperatureincreaseof2̊C.

Currentlythisfigureis2tonnesofCO2percapitaby2050(figure4).Sincemanyleastdevelopedcountrieshaveemissionspercapitatodaythatfallwellbelowthisamount, theycouldbe issuedwithCO2tradingpermits at 2 tonnes per person at initiation of thetrading process, and sell off their unused share todeveloped countries that produce over their limit.Thiswouldmeanan immediatecashflowfromrichto poor countries. In addition, it would encouragetheleastdevelopedcountriestodeveloplow-carboneconomiesinordertosustainthein-flowofmoney.This avoids the least developed nations emergingwithcarbon-intensiveeconomies.

It isconsiderablymoreattractive for thesegrowingeconomies to be fully incentivised as early aspossible to maintain low emissions. (Additionalregulationsmayneedtobeput inplace inordertodiscentivise population growth, and other potentialnegative consequences.) However, developed andemergingnationswouldberequiredtopayforCO2emittedabovetheiragreedtrajectories,outto2050.Whilst the authors recognise the issues that havebeen raisedwith implementingsuchascheme [56]andthecurrentlackofpoliticalwilldisplayedinthenegotiations towards this goal, it is important thatsolutions that tackle effectively the problems ofclimatemitigationandfinancingareaimedat.

Therearesignsthatthepoliticalacceptabilityofthisnovelapproachisgrowing.Thisideahasbeenpressedbymanyanalystsandhassupportfromdevelopingcountries.PresidentKagame,forexample,explicitlyexpressedhissupportforthissolutioninaspeechtotheUNin2009.ImplicitintheemissionstargetssetbytheUKgovernmentin2007istheacceptanceofthepercapitaapproachasanequitablegoaltoaimforby2050.

This solution is seen by many as being equitable- an essential factor in any solution to climatechange.Industrialisedcountrieshaveproducedthesignificant majority of the CO2 in the atmospherewhile industrialisingcountrieswillbeworstaffectedand will not be able to develop along traditional

pathways due to emissions restrictions. Currently,industrialisedcountriesareresponsibleforaround55percentofthestockofGHGsintheatmosphere[57].Thechangingfaceoftheglobalpowerstructurehasrisentotheforeinrecentyears.Inthefuture,emergingnationssuchastheBASICcountriesarelikelytobeincreasinglyvocal.Itisunlikelythatafuturedealcouldbe reached, including this group, which does nottakeequityproperlyintoconsideration.Thissolutioncould be away of bringing emerging nations suchas China and India into the global climate changeregime.Indiahasinthepastindicatedaninclinationtowardsthisconcept.

In summary, this scheme would demonstrate theresolve needed to properly manage the processof defossilising the global economy by 2050 in anequitableandefficientmanner,andalsorecognisesthattheleastdevelopednationswill intimejointheemergingeconomiesgroupandpotentiallybecomethehighCO2emittersofthefuture.

Itisclearthatresolvetoactonclimatechangeneedsto be strengthened if such a scheme were to beimplemented.Thereneedstobeincreasedactionatalllevelsandindividualpoliticalchampionsorfigureheadssettingexamples forothers. Inorder for thisto happen, the best and most up to date sciencepossible needs to be available and communicatedto political decision makers and leaders. Climaterelatedresearchneedstoratcheteduptofillingapsofknowledge.

Funding for Research, Development and Demonstration (RD&D)

Many commentators have called for much greaterpublic investment in energy RD&D to address theneedfornewlowcarbontechnologiestocoverenergyproduction,transport,storage,conversionandusage[58].Indeed,overthepasttenyearstherehasbeenaverysignificantincreaseinresearchactivitiesintheseareasinuniversitiesandpublicresearchinstitutionsaroundtheworld.

ButgovernmentfinancecaningeneralonlystimulatethefirstpartofthefullRD&Dprocess.Theturnoverintheglobalenergysectorismeasuredintrillionsofdollars.TheproportionspentonRD&Dinthissectorisnotoriouslylow,andbyfarthelargestpartofthatis spent toaddress technological issuesaroundoil

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whichprogresscouldbemade.

The Kyoto Protocol established two separateprograms for forest carbon. Annex I nations maygenerate carbon removal credits from certainland use, land use change and forestry (LULUCF)activities.Inthedevelopingworld,theCDMrewardscertain afforestation and reforestation projects byallowingthemtogenerateemissionscreditsthatcanbesoldtoAnnexInations.

These programs are inadequate, however, toeffectively and comprehensively address the roleof forests in the carbon cycle. Significant sourcesof forestemissionsand forestsinks remainoutsidethe scope of either program. Neither program, forexample,addressesthemassiveamountsofcarbonlosttotropicaldeforestationinthedevelopingworld.

To increasethescopeofcoverage,somecountrieshaveencouragedadoptionofaninternationalprogramfor reductions in emissions from deforestation anddegradation (REDD) from developing countries.Others have suggested expanding that to includenot justavoidedemissions,but increasesincarbonsequestration via forest planting and management(REDD+).

RecentworkattheSmithSchoolforEnterpriseandtheEnvironmentproposesastillmorecomprehensiveapproach, the Forest Program for Inventories inNational Carbon (PINC) that applies to all forestcarbonsequestrationactivitiesinAnnex1andnon-Annex1countriesalike[35].

The Agreement developed at Cancun is basedaround a REDD+ scheme. Although there is muchtodobefore it is truly operational, theAgreementsdo provide guidance for countries preparing to beREDD+ready.

Previousproposalsdifferwithrespecttothefundingmechanism for forest carbon sequestration. Someproposalssuggestadedicated fundwith resourcesprovidedbyAnnex1countries.Othershavesuggestedthat an international forest carbon program shouldbe linked to the international emissions allowancetrading program; i.e., reductions in deforestationandgains insequestrationwouldberewardedwithpaymentsintheformofmarketableGHGemissionsallowances.

The magnitude of finances required indicates theneed for the involvementof theprivate sector. TheCO2 market could provide an incentive that wouldmotivatetheprivatesectortocontributetoscale.TheestablishmentofthesenewmarketmechanismswillbeapointofdiscussionnextyearatCOP17inSouthAfrica.

There isageneral trend in thediscussionstowardsa focus on national accomplishments rather thanon project-by-project assessments. This hastwo important implications. First, it will be upto individual nations to develop domestic forestcarbon policies and programs in response to theinternational forestry agreement. Second, therewardsforaccomplishmentswillaccruetonationalgovernments.

The challenge for national governments, then, inpromoting forest carbon sequestration is designinga program that reliably induces landowners toprotectandexpandtheirforestcarboninventories–whether through regulations, subsidies, informationcampaigns, tax policy, or othermechanisms – andto take steps thatwill conserve and expand forestcarbon stocks. In nations with large holdings ofpublic land it may also be possible to use directmanagementbythegovernmenttoincreasecarbonsequestration.

Carefuldesignofdomesticprogramsforbothprivateand public landswill be key to the success of theinternational forest carbon sequestration initiatives.Itwill alsodetermine theextent towhich individualcountries benefit in terms of environment quality,resourcemanagementandeconomicdevelopment.

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for the systems that have been set up during thefirst commitment period, which needs urgent COPattention.

Theproblemofanabsenceofinternationallyagreedemissions reductions targets has largely beenovercome by the domestic pledges now officiallyrecognised by the UNFCCC process. Mechanismssuch as the EU ETS and other trading schemeswerestimulatedbytheexpectationofanagreement.However, as they are the result of years of carefulnegotiations and invested political and financialcapital therewillbe resistance toabandoning themat thisstage; theyare likely tocontinue regardless.Whatwillbemissingistheinstitutionalarchitecture,thecompliancesystemandsomechallengesfortheCDM.ThemainrecipientoftheCDMinvestmenthasbeenChinaandassuchthiscouldhaveimplicationsfor China’s participation in a global agreement.However, we note that the emissions reductionsgenerated by the CDM in China are a drop in theocean compared with the total amount needed.Of far greater importance are the policy decisionsenforcedbytheChineseGovernment.ChinaisnowconsideringadomesticCO2tradingprogramfor itsFive-YearPlanfrom2011to2015.

Overthenear-tolong-termparallelprocessesaimedatreducingemissionsarelikelytoevolveindifferentregions.ThereiswidespreadrecognitionthatmarketinstrumentssuchasCO2tradingschemeswillhavearoleinsupportingemissionsreductionsinacost-effectivemanner.IntheEU,theETSisthemaindriverbehind the 20 20 20 plan for emissions reductionsacrossthe27constituentnations.

In the future, itwouldbebeneficial for theEUETStobe linkedtoother regionsorcountries thathaveorplantointroduceCO2tradingschemes.Potential

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Chapter6

Parallel Processes

Formany, the ‘momentof reckoning’ in theclimatechangenegotiationswillbe in2012when theCOPreturns toRio twentyyearsafter theUNFCCCwasopened for signature there in 1992. In the run uptothe2012COPinRiothereneedstobesufficientprogress in South Africa. This remains the onlyopportunity for the issueof the futureof theKyotoProtocol to be decided. At the time of writing, thepolitical will ofmajor emitters such as theUS andChina issimplynotbehindacomprehensiveglobalagreement.Inaddition,othernations,namelyJapanandRussia,arebecomingincreasinglyvocalintheirresistance of a second commitment phase to theKyotoProtocol.There are areas of importance that can bemovedforward inSouthAfrica.Forexample,progresshasbeen made on issues of forests, climate finance,adaptation and technology. The area of climatefinance is particularly significant; securing anddelivering the fast-start funding for developingcountries isessentialboth for themtomitigateandadapttoclimatechangebutalsotohelptobuildtrustbetween developed and developing countries. It isvitalthattheriftbetweendevelopedanddevelopingcountriesishealedasquicklyaspossible.Ensuringthatthefast-startmoneypromisedbythedevelopednationsmaterialisesisonewayofgoingaboutthis.Positively, on the subject of finance, there is noparticularopponenttotheprogressionofnegotiations;thereisthereforenoobstacletofinalisingthefinancedeal.Had a new legally-binding global agreement forthesecondcommitmentperiodcome intobeingatCopenhagenorCancun,therewouldstilllikelyhavebeenagapbetween2012anditenteringintoforce.Asthisdidnothappen,agapbetweencommitmentperiods is now a certainty. This has implications


partners include Japan, Canada (Western ClimateInitiative),Australia(NSWGreenhouseGasAbatementScheme), New Zealand and the US (RegionalGreenhouseGasInitiative).Linkageofthesesystemswouldopenupnewopportunitiesformitigationandincreasemarketliquidityforparticipatingcompanies.Linkage between systems face various challenges[50],buttheyarenotinsurmountable.

The developing and emerging world has signalleditsinterestinbeingincludedinCO2tradingmarkets.Again, here there are planned schemes in severalcountriesthatcouldbe linkedtotheEUETSeitherona sectoralornationwidebasis.Mexico is in theprocessofsettingupavoluntaryprogramforGHGaccounting and reporting which at present covers21 per cent of national emissions but which is tobe expanded to cover 80 per cent. This schemewill provide essential capacity building for futureparticipationintheCO2markets.PresidentCalderonhas expressed interest in joining aNorthAmericantradingschemewith theUSandCanada. InBrazil,theintroductionofadomesticcapandtradeschemeisbeingconsidered[35].

Formanyoftheleastdevelopedcountries,therearesignificant advantages in incorporation into tradingagreements. Developing nations are frequently leftout of global trading agreements and this hinderstheir growth. Inclusion of developing nations inCO2 trading agreements would create internalincentives to engage in climate change mitigationandadaptation.InclusioncouldbebasedonNAMAsfor which support is claimed. Incentivising thosecountries togrow their economieswith lowcarbondioxideintensitythroughinternaldemocraticdecisionmakinginthiswayshouldbeapriority.ThecreationofparalleltradingschemesinsomepartsoftheworldwillgenerateCO2pricedifferentials,anditmustbeanticipatedthatsomelargecountrieswillimposenofinancialdisincentiveonCO2emissions.This would encourage the high CO2 emittingmanufacturingsectorstomovetheiroperationsintothesecountriesorzones.

ThenaturalresponsewouldbeanimpositionofCO2border tariffs on goods entering the CO2 tradingzone. (Inordertobenefitfromtheimposedtax,theresponseoftheexportingcountrywouldbetoimposethe border tax at the point of export with agreed

verification procedures). In this way the carbonleakage problem could be managed. However,multipleCO2pricesandtradingregimeswouldnotbefavouredbytheWorldTradeOrganisation.Intimetheadvantages of a single globally tradedCO2 pricingmechanism could be a significant driver towards aglobalagreement.

Othernationswithsimilarinterestsarelikelytogrouptogethertodevelopsolutions.Forexample,countriesthathavealargeportionoftheworld’sforests,suchasmanyofthenationsofSouthAmerica,maygrouptogether toadoptprocedures tocollectively reducedeforestation.StrongsupportforthisisdriventhroughthepotentialprofitabilityundertheREDD+scheme,which offers significant incentives for avoideddeforestation and reforestation. The declaration bytheGovernmentofBrazilatPoznantoterminatealldeforestationby2025hasbeenaprecursortosuchaction.

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Chapter7

Summary

The challenges raised by climate change aremanifoldandsubstantial.ReducingGHGemissionsand deforestation are now issues of the greatesturgency. Defossilising national economies over thecomingfourorfivedecadesislessofatechnologicalissue – there are many solutions, and many morewill be developed – than a behavioural, social andpoliticalchallenge.Thereismuchinbuiltsocialinertiainmeetingthese,butthechallengesarealsomajoropportunities for innovation and improved humanwellbeing.

TheCopenhagenAccordofDecember2009wasamajorturningpointinactiononclimatechange.Inanidealworld,themajorglobalpowers–theUS,ChinaandtheEU–wouldhaveprovidedleadershiptotheUNFCCC process, and a global deal would havebeenachievable.Intheabsenceofthis,thechallengeis now being met through unilateral commitments,initiatedpriortoCopenhagenbutmassivelyextendedthrough the Accord, and now integrated into theUNFCCCprocessinCancun.TheUNFCCCprocesswillcontinuetobeavitalcomponentofactionaswemoveon.Itwillacttoverifyandlegitimisetheactionsof individual nations, and is an important soundingboard, where the voices of small nations and oflessdevelopednationscanbeheard.Italsoactstogalvanisepublicandpoliticalopinion. Strongdecisivestepsareneededfromgovernmentstoplacea long termpriceonGHGemissions.Thiswill signal to the corporate sector that they aredealingwithclimatechangeseriously,andstimulateappropriate participation from that sector. Thepotentialprofitabilityofmovingtoagreeneconomycannotbestressedenough,butitdoesneedapriceon theemissionofGHGstostimulateaction in themarketplace.

Globalequityiscentraltothedebate.Acapandtradesystem based on a per capita emissions target bymid-centuryisapotentialwayofgeneratingfinancialflowsfromdevelopednationstotheleastdevelopedworld,creatingincentivesforlocaldecisionmaking.Itisimportanttonotethattheworldisnowengagedin solving the challenges of climate change asnever before. Nations have a more realistic ideaof what is actually involved in taking action.Majordevelopments are taking place. Action is nowrequired at the individual country level to increasetheiremissionsreductioncomitments.Anewsenseofurgencyneedstobeinjectedintothenegotiationprocess.


Acknowledgements

Acknow

ledgem

ents

Acknowledgements

TheauthorswouldliketothankProfessorDanBodansky,Dr.LavanyaRajamani,Dr.CameronHepburn,ProfessorRobertHahnandDr.DavidFrame for theirinsightfulcommentsduringtheproductionofthispaper.Inaddition,theauthorsareverygrateful toMutsuyoshiNishimuraandAkinobuYasumotoforsharing

theirhopesforthecarbonmarketsandinterestingdiscussions.


Acronym

s

ALBA BolivarianAlliancefortheAmericas

AWG-KP AdhocWorkingGrouponFurtherCommitmentsforAnnexIPartiesundertheKyotoProtocol

AWG-LCA AdhocWorkingGrouponLong-TermCooperativeAction

BASICcountries Brazil,SouthAfrica,IndiaandChina

CCS CarbonCaptureandStorage

CDM CleanDevelopmentMechanism

CFCs Chloroflourocarbons

COP ConferenceofParties

ETI EnergyTechnologiesInstitute

ETS EmissionsTradingScheme

GHG GreenhouseGas

ICA InternationalConsultationandAnalysis

IEA InternationalEnergyAgency

IPCC IntergovernmentalPanelonClimateChange

JI JointImplementation

LULUCF LandUse,LandUseChangeandForestry

MEF MajorEconomiesForum

MRV MonitoringReportingandVerification

NAMA NationallyAppropriateMitigationAction

NGO NonGovernmentalOrganisation

ODA OfficialDevelopmentAssistance

OPEC OrganisationofthePetroleumExportingCountries

PINC ForestProgramforInventoriesinNationalCarbon

RD&D Research,DevelopmentandDemonstration

REDD ReducingEmissionsfromDeforestationandDegradation

REDD+ ReducingEmissionsfromDeforestationandDegradationandCarbonSe-questration

UNEP UnitedNationsEnvironmentProgramme

UNFCCC UnitedNationsConventiononClimateChange

WEO WorldEnergyOutlook

WRI WorldResourceInstitute

Acronyms

Acronyms


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International climate change negotiations: Key lessons and ... · the climate change negotiations. Chapter 3 then addresses the outcomes of the Cancun climate change negotiations