Carbon Market Watch

For fair and effective climate protection.

Preview of the Climate Negotiations in Bonn (Newsletter #19)

08 May 2012

The next climate negotiations will take place between 14-25 May in Bonn, Germany. CDM Watch will be there to advocate for environmental and social integrity in carbon markets. Here is a summary of the relevant issues that will be discussed in Bonn.

New Market Mechanisms

At the climate negotiations in Durban in November 2011 countries agreed to establish a new market-based mechanism and to establish a framework that new bilateral or regional market mechanisms would have to comply with. However, none of the details have been worked out. Now Parties are working hard on coming up with rules and governance systems for these new market-based systems.

In Bonn these issues will be discussed at the 15th session of the Ad Hoc Working Group on Long-Term Cooperative Action under the Convention (AWG-LCA), download the provisional agenda. There will also be two workshops on these topics held in Bonn on May 19th:

Workshop on a framework for various approaches:

Workshop on the new market-based mechanism:

Currently, the two largest market-based mechanisms, the European Emissions Trading System (EU-ETS) and the CDM are on the brink of collapse. The economic crisis in Europe has lead to a dramatic decline in CO2 emissions. As a result, the demand for allowances has fallen and prices have dropped. In 2011, the price for EU-ETS allowances fell by about half, to around €7. Because the EU is also the largest buyer of CDM offsets (CERs), the prices of CERs have also dropped significantly to around €4.

The reason there is no demand for credits is that most countries have made very weak mitigation pledges. They simply will not need many credits to meet their commitments. So who will buy credits from new market-based mechanisms, if there is no demand for the existing ones? Some people argue that having new market-based mechanisms will motivate countries to take on more stringent pledges because they will be able to meet those pledges with cost-efficient market-based credits. But if there is already an oversupply of cheap credits, why aren’t countries upping their pledges now?

The future of carbon markets is uncertain but we will follow the negotiations carefully and keep you posted!

Appeals Procedure

Since its inception the CDM has been criticised for its lack of accountability, effective safeguards and grievance mechanisms. Establishing a legitimate process that provides means for all those impacted by a CDM project to raise their concerns and have them addressed in a timely manner is the only way forward. Currently there is no way to appeal a project once it has been registered or rejected. CDM Watch has been advocating for a broad appeals procedure that would ensure access to justice for allimpacted stakeholders. Peoples and communities that must be involved in the local stakeholder consultation and stakeholders that are involved in the global stakeholder consultation should have legal standing for appeals. It is unacceptable to grant access to justice for project participants only! The right to information, the right to public participation and the right to seek justice are intrinsic to every individual and inherently human rights. Yet many countries actively argued against an appeal procedure that would include registered projects and local stakeholders with the argument that this would make the CDM process even less efficient. This is why no decision was taken in Durban and the discussion was postponed. Indeed, it would be preferable to have no appeals procedure at all than one that excludes civil society from legal standing.

Parties will get another chance in Bonn to adopt a meaningful appeals procedure that will be applicable to positive as well as negative decisions by the CDM Executive Board and allow all impacted stakeholders to launch an appeal. The appeals procedure will be discussed at the 13th meeting of the Subsidiary Body for Implementation (SBI), download the provisional agenda here.

Other CDM Issues

At its 36th session, the Subsidiary Body for Scientific and Technological Advice (SBSTA) (download the provisional agenda) will discuss the following issues related to the CDM:

Carbon dioxide capture and storage (CCS) in the CDM

CDM Watch and many other NGOs had worked tirelessly to prevent CCS from being allowed under the CDM, yet

Parties approved this project type in Cancun and modalities and procedures for it in Durban. Despite intensive negotiations some issues remained unresolved in Durban, such as transportation and transboundary issues, a possible dispute mechanism, and a global reserve of CERs. These issues will be discussed at the upcoming meetings in Bonn.

Reforestation of lands with ‘forest in exhaustion’

Parties will discuss (again) if ‘forests in exhaustion’ (depleted forests) should be included as afforestation and reforestation CDM project activities. CDM Watch strongly opposes the inclusion of this project type because it is likely to provide subsidies to industrial tree plantations in circumstances that encourage bad management practices and the establishment of plantations in inappropriate locations.

Not on the agenda: new HFC-23 facilities

In Durban parties briefly discussed whether new HCFC-22 facilities should be eligible under the CDM to destroy their HFC-23. Not surprisingly the big HCFC producers China and India support eligibility. However, credits from HFC-23 facilities will no longer be eligible in the EU-ETS starting in 2013.

CDM Watch has long argued that these emissions should be dealt with through non-market-based mechanisms under the Montreal Protocol. The issue will not be discussed in Bonn but instead be taken up at COP18 in Doha.

KP or not to KP?

Although Parties have decided on a second commitment period of the Kyoto Protocol (KP2) in Durban, a couple of vital issues still have to be decided. If they are not, it is unclear what the future of KP2 will be.

The Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol

Will discuss:

The length of the next commitment period

In Durban, Parties decided that the KP2 will begin on 1 January 2013 and end on either 31 December 2017 or 31 December 2020.

How Parties should translate their pledges into the amount of actual emissions they are allowed to emit under KP2

This is usually called translating pledges into quantified emission limitations or reduction objectives (QELROs). Parties are supposed to submit their QELORs by 1 May 2012 but it remains to be seen how complete and specific these submissions will be, since how pledges are translated into QELROs has a significant impact on how much a country actually has to reduce its emissions and countries may still want to hedge their options in terms of how stringent their emissions reductions will be.

How to deal with ‘hot air’ AAUs

Russia, Ukraine, Poland and a few other countries have large amounts of allowances left over from the first commitment period. The whole surplus is an estimated 11 Gigatons. Under current Kyoto rules, the full carry over of these credits is allowed. But if these surplus AAUs were all to be used, they could easily wipe out the current reduction commitments of all developed countries. Countries with large surpluses are strongly advocating for keeping the carry over, whereas OASIS and the African group and other countries that will be severely impacted by climate change have been calling for the severe restriction of the carry over. The EU unfortunately has been silent on the issue because there is no internal EU agreement on the issue, primarily because Poland staunchly opposes any canceling.

Durban Platform meets for the first time

Parties will have to discuss all three of these important issues in Bonn. The newly established Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP), will have its first session in Bonn.