Agreeing to a second commitment period without meaningful rules is pointless. Emission cuts must be ambitious
The 18th Conference of Parties (COP) to the United Nations Framework Convention on Climate Change began last Monday in Doha. This is an important “transitional” COP towards a brand new agreement that promises to encompass all countries. A number of items are up for discussion, but this article only deals with those of interest to the carbon market.
When Parties last met in Durban (2011), they committed to developing a future climate regime by initiating a new round of negotiations to be concluded by 2015 and made operational by 2020. In other words, they agreed to talk. Decision text of the Durban Platform for Enhanced Action appears to bring all Parties from the developed and developing worlds alike onto one track, but considering the last minute weakening of the EU’s proposed “legal framework” to “an agreed outcome with legal force”, there is scepticism around Parties’ levels of sincerity.
The good news, though, is that China and Brazil seem to be willing to take on emissions cuts sooner than expected. This appears to have fractured the traditional G77 + China negotiating block into smaller groups, and it remains to be seen whether their actions nudge others to take on similar commitments.
The nuts and bolts
The following items may sound like noise, but are important and are up for discussion in Doha:
1. It is time to take a call on a second commitment period for the Kyoto Protocol, which is set to end in December 2012. There has been no resolution on US participation, developing countries have objections, and Japan says it won’t join. Australia and the EU remain the only candidates to commit, but may (and should) do so if for no other reason than to rescue the clean development mechanism (CDM) and link their carbon markets with a common approach to accounting, and a single market currency – assigned amount units (AAUs) and certified emission reductions (CERs). Despite the lack of critical mass, Parties do need to agree, at least to use Kyoto’s inherent carbon market architecture into the New Agreement.
However, agreeing to a second commitment period without meaningful rules is pointless: emissions cuts must be ambitious and carryover rules shouldn’t drag surplus carbon permits from the 2008-2012 period to a fresh phase. According to Thomson Reuters, targets declared by Parties likely to participate in a second Kyoto period are significantly higher than business-as-usual emissions between 2013 and 2020. This is a serious issue, and risks undermining the environmental integrity of emissions trading altogether.
2. Doha should see progress on giving direction for a new market mechanism, inherent in the Durban Platform. There is debate even on basic issues such as whether it should include project-based mechanisms like the CDM, or sit alongside them. Kyoto, despite its shortcomings, created architecture for emissions target setting, linking with regional schemes, and involving developing countries in a manner not demonstrated since its inception in 1997.
While the Durban Platform is designed to be a follow-up global treaty to Kyoto, the terms of the agreement will not be finalised until 2015 and it will not enter into force until 2020. That’s why a second phase of Kyoto lasting eight years (2013-2020) is important—by ensuring that the planet has a continuous climate change treaty.
3. The Green Climate Fund, a grand idea agreed to in 2009, is supposed to channel $100 billion a year to developing countries by 2020. The fund is scheduled to start operating from 2013 and wealthier nations are being urged to pledge money, but the pot remains relatively empty. And, hugely political; the only significant decision so far has been that South Korea will host the fund.
That said, Doha is set to decide how and when the GCF will be financed, though success is debatable considering that none of the discussions so far have explored how to source private capital.
In addition, the idea of such a fund was born under a negotiating group whose job was to deliver a grand deal in Copenhagen 2009, but the group didn’t manage to do that. Its noise, however, lingers on and hopefully Doha will put this group to rest.
4. And finally, REDD, the emerging promise for curbing deforestation. Deforestation and land degradation currently account for over 15% of global emissions, and the Kyoto Protocol has no way of curbing this. It provides credits for afforestation but its rules are so cumbersome that only a handful of projects have made it through the UN system.
REDD, which stands for Reduced Emissions from Deforestation and Degradation, is a proposed performance-based system where parties would receive incentives for reducing emissions from deforestation. Doha hopes to further develop the nuts & bolts for this scheme (how to involve private companies, who pays, how mitigation actions will be measured and so on), in an attempt to channel private monies towards forest protection. REDD is thus far a voluntary scheme, where incentives could be carbon permits tradable in an international market. But once again, its success is underpinned by the level of demand for credits: who will buy and at how much?
The author is with C-Quest Capital, a carbon finance business headquartered in Washington, DC