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COP 19 Analysis Editorial

In the early hours of Sunday, 24 November 2013, the 19th Conference of the Parties (COP19) to the United Nations Framework Convention on Climate Change (UNFCCC) concluded in Poland, Warsaw. After a 40 hour negotiating marathon, the conference concluded with a package of decisions and an even bigger bunch of undecided issues that will be discussed at the next session in June 2014.

The decision by the Polish COP Presidency to co-host the World Coal Association’s International Coal & Climate Summit during COP19 was simply outrageous and placed the conference under a dark shadow of corporate and short-sighted government interests. It was not just the Poles who made this COP one of the most demoralizing. During the COP, Japan announced that it lowered its target – from fairly ambitious to meaningless and Australia’s new government is trying hard to dismantle its climate policies. The Climate Action Tracker in the meantime let us know that with the current reduction commitments we are heading towards 4o Celsius of warming by the end of this century.

Against these prospects, the final outcome was not a disaster.  Although the timeline was pushed back to the first quarter of 2015, it does give countries a deadline for when they have to present how they intend to contribute to the global goal to combat climate change. However, the negotiations for the new climate deal for after 2020 inched forward by watering down requirements for the mitigation targets counties will have to take on. “Commitments” were changed to “contributions” (see here for a marvellous spoof on this) and any reference to equity was removed.

In addition, decisions were taken on a Framework for REDD+. A relatively positive outcome includes the decision to enforce REDD+’s mandatory environmental and human rights safeguards by both setting up a system to monitor, report and verify carbon emissions.

Some marginal progress was also made on finance. Countries pledged US$ 280 million to finance the new REDD+ Framework and reached their goal to fill the Adaptation Fund with US$100 million. However, no pledges were made on how to reach the goal of mobilising US$ 100 billion annually from 2020. At the eve of Typhon Haiyan that hit the Philippines ahead of the conference and caused major disaster, the conference also finally agreed to establish a mechanism to address loss and damage as the result of climate change. However, much remains unclear, including how the mechanism will be financed.

While the COP was expected to be a “Finance COP” and ultimately rather turned into a “REDD COP”, it was definitely not a “Carbon Market COP”. Warsaw saw no decisions on establishing future carbon markets. All discussions on major decisions on the framework for various approaches (FVA) and the new market mechanism (NMM) were postponed to the next session in June 2014.

The reason for this was enormous disagreement and general distrust about the intention of countries that are aggressively advocating a trading platform for credits from various market mechanisms. For example Japan, which is developing a Joint Crediting Mechanism (JCM) which has raised doubts about its environmental integrity, has pointed out at various occasions the importance of such a framework while at the same time announcing to decrease its climate reduction target. A UNFCCC high-level round table on market approaches during the COP, which should have provided a platform for key players in the fight against climate change, instead included panellists from countries that have hampered the international climate process, such as New Zealand, and corporate lobbyists that are not known for supporting climate friendly policies, such as the Italian energy giant ENEL and the International Emissions Trading Association (IETA).

Also the reforms of the rules of the Clean Development Mechanism (CDM) and Joint Implementation (JI) were postponed. The only decisions that were taken relate to guidance on the CDM and JI for implementation in the course of 2014. It is noteworthy that in particular the CDM decision includes useful language to improve the local stakeholder consultation rules and a monitoring mechanism for the contribution of sustainable development of CDM projects. Host countries can now approach the CDM Executive Board for technical assistance and guidance on these issues.

Following the heated negotiations on hot air in Doha, several countries were hoping in vain to get a much needed decision on how to implement the Doha decision that limits carry-over of hot air and avoids the new build-up of surplus in the second commitment period. Negotiations were postponed to the next June session. The delay makes it difficult for Parties with commitments in the second commitment period, such as the EU, to move forward in ratifying the Kyoto Protocol.

See full analysis here

New Report Shows Huge Potential For Non-ETS Sectors In 2030 Energy and Climate Framework

Today, the report “Trend and projections in Europe 2013” was published by the European Environmental Agency (EEA). It tracks progress towards Europe’s climate and energy targets until 2020.  The good news is that Europe’s Member States are on track and will achieve 21% reduction below 1990 levels in 2020 with current climate policies in place. Together with additional measures at planning stage, a 24% reduction below 1990 levels in 2020 is expected.  This confirms that reaching our climate targets was possible and much easier than actually expected. The study also shows that growing our economies while reducing emissions is possible.

The not so good news is that the current rate of progress implies roughly an average rate of reduction of only 0.8% per year which will only bring 48% reduction by 2050. But science tells us that we need to reduce by 80-95% by 2050 to keep global warming below 2 degrees. We also need to spur our domestic investments and move away from spending scarce climate finance on international offsets. The report finds that Member States have spent more than 2.3 billion Euros on international offsets to achieve their Kyoto targets. At the same time renewable energy and energy efficiency measures have been neglected.

The new report reveals that the potential of the Effort Sharing Decision, the piece of legislation that covers sectors outside the EU’s Emissions Trading Scheme and could create enormous incentives for energy efficiency measures, hasn’t been utilized. This is especially important in the context of the debate around the 2030 climate and energy framework which should be the successor of the 2020 climate package.

Why does the EU need a framework for non-ETS emissions?

If the EU is serious about reaching GHG reductions of 80-95% reductions by 2050 it must transition to low carbon development in all key sectors as soon as possible. These transitions take time. Almost 60% of the EU’s GHG emissions are from sectors outside EU-ETS, yet these sectors are only required to reduce emissions by 10% by 2020. Significant gaps exist in the EU regulation of key sectors, such as agriculture, mining, transport, lighter industry and consumers. Gaps also exist for particular GHG gases such as methane emissions. Binding, economy-wide targets are essential to drive national measures.

The binding EU GHG reduction target for 2020 only exists through the ESD and the ETS legislation, there is no other legislation that makes the EU goal legally binding. The ESD is the structural instrument or ‘chapeau’ that translates the economy wide GHG target into national binding targets.  If for the period from 2020-2030 the EU only had the ETS plus sectoral policies, e.g. Energy Efficiency Directive, Renewable Energy Directive, Landfill Directive, there would be no legally binding economy wide target for the EU. The ESD ensures such an economy wide target and offers flexibility to EU Member States in their choice of policy mix to achieve GHG reductions. It furthermore aims to share the reduction effort in an equitable way by allocating different targets to different Member States.

What about Energy Saving Targets?

CO2 is the largest contributor to man-made climate change. In the EU CO2 emissions are responsible for over 80% of greenhouse gas (GHG) emissions. But also other gases need to be addressed if the EU is to meet its 2050 reduction goal. Unlike the ETS, which primarily regulates CO2 emissions, the EU Effort Sharing Decision covers all of the six most important GHGs.

The recent numbers published by the EEA show that only three Member States are considered to be making progress towards energy efficiency targets. This is largely due to the fact that only a small number of European legislations exist that obliges Member States to implement energy efficiency measures. The ESD could help drive higher ambition for a broader set of energy savings measures by translating the EU economy wide GHG target into binding obligations for each MS.

To effectively reduce emissions from all greenhouse gases, the EU will therefore need both, ambitious Energy Savings Targets and an instrument like the ESD to provide a governance framework for the economy wide GHG target, in order to be on track for a nearly fully decarbonised economy by 2050.

 

International Carbon Offsets in EU Climate Legislation – Time to say Good-bye?

EU policy makers are currently debating the design of the EU’s Climate Framework for the period of 2020-2030. Under the current Climate and Energy package, the use of international offset credits has undermined domestic mitigation action significantly both under the EU’s Emissions Trading Scheme and the Effort Sharing Decision. International offsets should therefore no longer be eligible for compliance under the 2030 EU Climate Framework.

The EU’s Climate Framework for the period of 2020-2030 will include a comprehensive policy package to that defines climate and energy targets and policies for the period from 2020-2030. In December 2013 the European Commission is expected to publish a White Paper and Member States are scheduled to decide on EU targets for 2030 in March 2014.

The EU will have to reconsider the use of international offsets for the period post 2020. The use of Kyoto offset credits in the EU ETS and under the ESD was originally meant to make mitigation action cheaper both for companies in the EU ETS and for countries to comply with their reduction goals in the non-ETS sectors.  However, the quantity limit of international credits in the period 2008 to 2020 turned out to be much too generous. Offsets have been a major driver for the build-up of surplus. According to the European Commission report “The state of the European carbon market”, the use of international offsets in the EU ETS has almost doubled the oversupply in the period 2008-2011 and is estimated to amount to three quarters of the oversupply by 2020.

In addition, a significant number of offsets have proven to be of low quality. We outline in this article why offsets should not be allowed under the 2030 EU Climate Framework.

The quality of offset credits remains limited

Offsetting does not lead to emission reductions per se, it only allows for the geographical or sectoral shift of the emission reductions to enhance cost-effectiveness of emissions reductions. Additionality, the concept that only projects that are beyond business-as-usual receive credits is therefore essential for ensuring that offsetting does not lead to a net global increase in emissions.

There have been serious quality concerns over the environmental integrity of some project types in the Clean Development Mechanism (CDM) and Joint Implementation (JI). Research conducted for the CDM Policy Dialogue estimates that the CDM may have delivered less than half of the emissions reductions it sold. Under JI, the achieved climate benefits are likely to be even lower. Despite these findings, countries have shown little willingness to tighten the CDM and JI rules to address the blatant quality flaws.

The use of non-additional international offsets directly undermines EU climate goals. Non-additional offset credits also undermine the economic effectiveness of climate policies by making it more expensive to actually meet the necessary reduction targets to stay within the 2 degree limit.

Currently countries are discussing establishing rules and procedures for new market mechanisms that could generate internationally tradable units eligible for compliance under the UNFCCC. Given that many countries are advocating for even weaker rules for such new credits than under the CDM, It is far from likely that such new market mechanisms will deliver international credits with higher environmental integrity than the current Kyoto mechanisms.

Double counting here we come

The post-2020 climate treaty will include commitments from developing countries. The risk of double counting of emission reductions that are sold as offsets is technically and politically difficult when both the host and buyer countries have reduction targets. Double counting undermines mitigation goals and economic efficiency and must therefore be avoided.

Double counting is already a reality of emissions reductions sold under the CDM that originate in Non-annex 1 countries with a reduction pledge for 2020.  Research shows that double counting of international offsets could reduce the ambition of international climate pledges (developed and developing countries) by up to 1.6 billion tons CO2e in 2020, equivalent to roughly 10 percent of the total abatement required in 2020 to stay on a 2°C pathway.

Offsetting hampers domestic abatement efforts

Experience with the EU’s Emissions Trading  Scheme (EU-ETS) and the Effort Sharing Decision (ESD) has shown that the use of international offsets has hampered domestic abatement efforts.

The use of offset credits from the CDM and JI in the EU ETS and the ESD was originally meant to be a cost containment tool to allow countries and ETS operators to choose the most cost effective way of complying with the ESD and EU-ETS respectively. But the economic crisis together with the oversupply of international offsets has made it unnecessary for many EU countries and entities covered under the EU-ETS to actively cut their own GHG emissions.

Eliminating access to international credits will help ensure a stronger focus on domestic abatement and spur investment in low carbon technologies in EU industry. Currently, the very low EU ETS allowance prices do not facilitate a low carbon path for European industry. In the long term, it is necessary to eliminate the use of international credits to encourage more ambitious domestic cuts, trigger more investment in low carbon technologies and enable EU industry to reach its de-carbonising goal of 80%-95% by 2050.

 

Why a pilot phase for a carbon market framework is a bad idea

At COP-19 in Warsaw, Parties will continue to discuss the development of new carbon markets under the so called Framework for Various Approaches (FVA). The FVA aims to set common rules for domestic and regional carbon markets to sell market units to other countries for compliance with their climate commitments under the UNFCCC. New regional carbon markets such as emissions trading schemes and offsetting programmes are being developed in many countries, including Japan, California, China and South Korea. Parties decided at COP-17 in 2011 that a framework should be established to enable cost-effective mitigation actions, e.g. by using these carbon markets. At the same time it was decided that a certain set of standards needs to be met. Crucial questions that remain are to what extent such market mechanisms should follow a common framework of rules under the UNFCCC, how and at what level these standards should be implemented and whether access to the framework either as buyers or as sellers will depend on a certain level of ambition.

 

Decisions on the FVA taken in Warsaw can have detrimental impacts on the effectiveness of a post 2020 agreement. The FVA negotiations therefore cannot happen in isolation but have to be closely related to the discussion on accounting rules and on pledges and ambition under the ADP. Some organisations and Parties, most notably the COP-19 host Poland, have been advocating establishing a FVA pilot phase under the UNFCCC. Although in general piloting can help build capacity, a FVA pilot scheme would risk the integrity of a future climate deal. Advocates of a pilot phase have stressed that any units generated should be recognized under a post-2020 climate deal. This means that participating countries would be able to claim benefits for pre-2020 actions in the form of receiving reduction units which they could use for compliance under the new climate regime. Talks on the post-2020 regime have yet to focus on the use of markets, the types of targets countries commit to and how these are accounted. Early recognition under a pilot would set a dangerous precedent: once units are eligible for compliance it would be difficult to retroactively tighten accounting rules or exclude low quality units. The experience of CDM and JI shows that establishing lenient rules to get a mechanism off the ground in the hopes that rules can be strengthened later on is difficult at best and in many cases politically impossible.

 

Generally, the following elements need to be addressed in the FVA negotiations:

  • MITIGATION AMBITION: Carbon markets can only function if they are part of an ambitious climate regime that leads to a substantial overall reduction in emissions. If mitigation ambition is insufficient, demand and prices for market units are too low to ensure that markets can function properly and can lead to low quality of market units. Reduction commitments need to be comparable and transparent. Therefore requirements for clear and ambitious pledges need to be established as a pre-requisite for setting eligibility criteria for the participation in international trade of market units under an FVA.

  • ENVIRONMENTAL INTEGRITY: The market units have to have environmental integrity, for example, be additional and permanent, and based on realistic and conservative baselines. The wealth of experience gained through the U.N.’s current CDM and JI market mechanisms must be taken into account. The units need to be adequately accounted for to ensure the emissions reductions are only counted once to prevent “double claiming” of emission reductions by both host and buyer country. Parties agreed that the new carbon markets should lead to “net decrease and/or avoidance of greenhouse gas emissions.” It is important to note that any net reductions in emissions can only be achieved if all double counting issues are addressed. It is also important that any rules established under FVA clearly stipulate for which period they are applicable. FVA rules that will apply post 2020 must ensure that all quality and accounting issues are addressed, so that the use of international market units cannot undermine mitigation targets and pledges.

  • SUSTAINABLE DEVELOPMENT: Rules need to be established to implement the goal of sustainable development. This should include for example standards requiring that sustainable development impacts are monitored, reported and verified and that interests of local communities are taken into account and safeguards put in place.

 

*This blog was published first by Carbon Market Europe, a Reuters Point Carbon publication incorporating CDM & JI Monitor, Volume 12 Issue 38 on 4 October 2013

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