Asia, Europe, Latin America, Middle East & Africa

Reading between the lines: Why Copenhagen was not a total failure

Issue 4 and Volume 18.

 

The consensus is the Copenhagen climate talks at the end of last year failed, but Olga Gassan-zade and Kristian Tangen from Point Carbon beg to differ. They highlight the small but significant successes achieved and more importantly discuss what the next steps should be in developing a global climate change policy.

 

Olga Gassan-zade & Kristian Tangen, Point Carbon

Taking stock of Copenhagen is not easy. On the one hand the climate talks ended without a clear agreement or a roadmap for the future. On the other hand, to astute observers, the outcome of Copenhagen is far from a disaster. It is a move in the right direction, and it gives a certain – albeit maybe not exactly clear – indication of where climate policy and carbon markets could be heading in the future.

Olga Gassan-zade, senior analyst, Point Carbon Kristian Tangen, co-founder of Point Carbon

The Copenhagen conference hosted two parallel events. One was a regular negotiating session of the United Nations Framework Convention on Climate Change (UNFCCC) parties, which was expected to produce a successor to the Kyoto Protocol, and the other was a summit of heads of states, which were expected to preside over its adoption, and maybe resolve some of the difficult outstanding issues that require political decisions above the level of rank-and-file negotiators.

Yet the enormity of the task at hand overwhelmed the carefully orchestrated plans of the organizers. An impasse at the negotiating floor meant that heads of state, instead of rank-and-file negotiators, were drafting the agreement in the final days of the Copenhagen summit, and the decisions they reached reflected the level of engagement of those involved.

The text that the heads of state produced, the Copenhagen Accord, outlines what was agreed and where opinions still differ.

 

Some small but important successes

 

There is agreement that the world, collectively, needs to stabilize the rise in global temperatures at below 2 oC. There is also agreement that both developed and developing countries must take actions to mitigate their emissions in order to achieve this goal. These actions, of course, will have to be different according to the principle of common, but differentiated, responsibilities.

The fact that developing countries accepted the need to cut their greenhouse gas (GHG) emissions and made pledges to take specific actions to achieve these cuts represented an unprecedented step forward and makes the Copenhagen talks an undeniable success.

The two-year preparatory process which preceded Copenhagen allowed countries to formulate domestic mitigation policies – to be transformed into pledges – that would not have been there otherwise.

To date, countries representing more than 80 per cent of global GHG emissions in both the developed and developing world have put forward their reduction targets and actions.

Another clear success in Copenhagen was the agreement on finance. The developed world agreed to ramp up finance to developing countries to reach as much as $100 billion per year by 2020 for mitigation and adaptation.

The developing countries had long demanded that without the financial support of the developed world they would not be able to halt the growth in their emissions and would not be able to meet the increasingly inevitable costs of adapting to climate change.

How exactly the world is to get to the 2 oC stabilization target was something that the Copenhagen talks should have resolved, but failed to. There was no time – and little appetite – to discuss the GHG reduction targets that individual countries should take as part of their contribution to the stabilization target.

The disagreement was at a more fundamental level: how to split global emission reduction obligations between the developed and the developing worlds. Not even the aggregate numbers could be agreed.

The long-term benchmark for global emission reductions advocated by the developed countries, namely 50 per cent of emissions by 2050 from 1990 levels, and the aggregate reduction obligation they offered to take on themselves, namely 80 per cent by 2020 from 1990 levels, implicitly also sets expectations for aggregate emissions reductions by developing countries.

China, which is already the world’s biggest GHG emitter, was careful not to agree to this. In its view, the proposed targets would still allow developed countries to have per capita emissions in 2050 several times higher than those in developing countries, while at the same time obliging developing countries to make mandatory emissions cuts.

As a result, no concrete reduction targets were set in Copenhagen; instead countries were invited to submit whatever efforts and targets they felt were appropriate for them.

Surprisingly, the emissions reduction pledges offered by the developing countries were greater than many expected. According to Point Carbon’s estimates, China’s pledge to reduce its emissions intensity by 40-45 per cent on 2005 levels is roughly comparable to the 17 per cent economy-wide reduction target offered by the USA.

While India’s pledge to reduce carbon intensity by 20-25 per cent in the same time-frame falls short of the Chinese carbon intensity pledge, substantial investments in renewable energy and green technologies will have to take place in order to meet these targets especially given the expected economic growth over the next decade.

 

Emerging Elements of a future framework

 

The emissions reductions pledges made so far, however, would not be sufficient to stabilize the rise of global temperatures at 2 oC. The negotiations must continue and the level of ambition set in the pledges will need to be strengthened if small island states are to have a future. A new framework, or the renewal of the old framework, would be necessary to make it possible to achieve the required reductions.

Some of the elements of this future framework are becoming clearer after Copenhagen. It was agreed that a mechanism for tackling emissions from deforestation and forest degradation (REDD-plus) and a mechanism for technology transfer should be established to enhance the mitigation actions by developing countries. The increasing costs of adaptation were also acknowledged and addressed through the proposed establishment of a Copenhagen Global Green Fund and a ‘High Level Panel’ to work with it.

The actions that developing countries will take to reduce their emissions will also need to be measured, reported and verified. While the details and standards for such verification are yet to be elaborated and the level of scrutiny will differ depending on whether the actions have been financed by developed countries or not, in general the accounting of emissions by developing countries is set to increase; something that these countries have resisted for a very long time. This breakthrough was brokered personally by the US president Barack Obama.

 

Legal uncertainty post-2012

 

Clearly below expectations was the inability of the decision-makers in Copenhagen to resolve the issue of the legal architecture of a post-2012 agreement. Highly contentious issues including the continuation of the Kyoto Protocol and a legally-binding instrument under the UNFCCC remained unresolved. Contrary to usual negotiation practice, the Copenhagen Accord also failed to establish an outline of when a legal outcome was to be expected

It is these legal uncertainties that have lead the carbon market to dismiss the Copenhagen talks as a failure. Yet while it may have been a failure for the European Union (EU), which hoped to bulldoze through its own vision of a post-2012 framework, it was a victory for the developing countries that wish to see the continuation of the Kyoto Protocol.

Although no agreement was reached on the successor to the Kyoto Protocol at the United Nations’ COP 15 conference, which took place in Copenhagen, Denmark late last year, some positive signals emerged Source: Christian Alsing

The Copenhagen Accord by itself has no legal standing. A consequence of the reliance on the heads of state to get the agreement through was that due process under the established procedures of the UNFCCC was not followed and several states which felt they were left out of the decision-making process blocked the adoption of the agreement.

The conference of the parties of the UNFCCC thus merely ‘took note’ of the agreement – an arrangement that will allow parties to use the Copenhagen Accord as a political guidance document under the UNFCCC umbrella.

The negotiations in Cancun, Mexico in 2010 will continue from where they were left off at the end of the Copenhagen conference, using negotiating texts prepared by the two main drafting groups under the UNFCCC and under the Kyoto Protocol. Given that the Copenhagen conference nearly collapsed over the attempts by the EU and its allies to introduce a single document augmenting the UNFCCC and Kyoto tracks (‘single outcome’), Point Carbon does not believe that this scenario will be played out again in Cancun later this year or in South Africa in 2011.

Indeed, Point Carbon’s expectation is that there will be no change to the two-track system of the UNFCCC and the Kyoto Protocol of today. What could exist after 2012 is a pledge-and-review system, in which developed countries will take non-binding, aspirational economy-wide targets, while developing countries will make voluntary pledges of emissions reductions.

Under such a scheme there would be no allocation of caps through assigned amounts – for the USA and developing countries at least – there would be no compliance regime due to the non-binding nature of the targets and the offset mechanisms would be limited to the continuation of the Clean Development Mechanism (CDM) in its current shape.

There would be also no need for a new legal framework, as a pledge-and-review system can, in theory, be implemented through the decisions of the conference of parties, which only need to be adopted in the plenary and do not require ratification.

For Annex I parties that are part of the Kyoto Protocol (i.e. most of the industrialized countries, excluding the US and Canada) one can envisage that their targets would be inscribed in Annex B, making them legally-binding. This can be done through an amendment of the Kyoto Protocol.

 

Where do we go from here?

 

The upcoming negotiations in Cancun and South Africa are likely to focus therefore on fixing the flaws in the current system, such as accounting for emissions from land use, land use change and forestry in developed countries, the banking of existing Assigned Amount Unit (AAU) surpluses in East European countries, as well as the formalization of political decisions reached in Copenhagen on REDD, financing, technology mechanism, adaptation, and monitoring and reporting for developing countries.

The two-track architecture first and foremost strengthens the outlook for the continuation of the CDM framework as it exists today. Furthermore, the pivotal role of the private sector has become clearer in the Accord.

If the promise of up to $100 billion per year to the developing world is to be realised, private financing will be instrumental in complementing public efforts. Already the EU is anticipating that some €38 billion ($51 billion) out of €73 billion required in 2020 could be leveraged through private finance. That would mean more than half of the financing would come from the private sector.

The pledges the developed countries made under the Copenhagen Accord by the end of January 2010 translate into a level of demand for international credits that will be sufficient to maintain the current offset market. Yet if the temperature stabilization target is to be achieved the level of ambition in the pledges – and hence the demand for international offsets – would need to be scaled up.

Little clarity was provided in the Copenhagen Accord with respect to the new market mechanisms after 2012. What’s more, the summit’s failure to produce a decision under the UNFCCC means that any negotiations on new mechanisms will likely be delayed by two years along with other issues relating to the post-2012 framework.

Considering the length of time between the establishment of frameworks, the elaboration of details and final initiation of new mechanisms, it appears unlikely that any new mechanisms, should they be created, would be able to generate substantial volumes of credits by 2020.

The focus on scaling up the CDM is likely to become even more important in the future if the EU decides to raise its 2020 target from its current 20 per cent reduction on 1990 levels to a 30 per cent reduction target, as Point Carbon predicts it will.

 

The EU looks set to take the lead

 

The growing support for the Copenhagen Accord has reassured the EU and its focus seems to be shifting towards repositioning itself as a leader in international climate negotiations again. One of the ways of doing this would be to raise its target to 30 per cent.

Whether the EU will raise its target before South Africa or after is only a question of time. Recent communications from the EU indicate that it wants to see that the level of ambition for all Annex I countries as an aggregate reaches the Intergovernmental Panel on Climate Change (IPCC) mandated 25 per cent to 40 per cent of 1990 levels and that the current flaws in the system are fixed. It is Point Carbon’s belief that these goals are within reach.

Once the EU’s target is raised, it will have immediate repercussions for the companies covered under the EU Emissions Trading Scheme (ETS); access to substantial volumes of offsets will be required otherwise the scheme will become a huge burden to the EU’s economy.

Unfortunately the uncertainty of the eligibility of the certified emission reductions (CERs) and emission reduction units (ERUs), from projects in the developing and developed countries respectively, registered after 2012 seems to be stifling the market and thus investment in projects that could be generating the offsets in 2013-2020. The text of the EU ETS Directive for the post-2012 period promises to restrict the import of international offsets from countries that have not ratified the post-2012 agreement as well as mentioning possible restrictions on project types that could be introduced after 2012.

The mismatch between the long-term needs for offsets and medium-term uncertainties is unlikely to be resolved in the near future as the caveats in EU legislation are the main bargaining chips the EU believes it can use as leverage in the negotiations. For better or worse, the private sector in Europe will have to live with these uncertainties until after the post-2012 framework is finalized.

Olga Gassan-zade is a senior analyst at Point Carbon, focusing on international emissions trading and post-2012 issues. Having followed Kyoto Protocol issues for over ten years, she has a broad experience in climate policy analysis and GHG management, and has advised companies and governments on the development of the carbon markets and greenhouse gas mitigation strategies.

Kristian Tangen co-founded Point Carbon in 2000. He is a specialist on the political and market aspects of the Kyoto Protocol, and has followed climate negotiations since 1994 and the Kyoto process closely from its starting phase. He has helped multiple companies and governments in setting up their climate strategies.

 

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