Select Committee on Environmental Audit Minutes of Evidence


Memorandum from the Royal Society for the Protection of Birds (RSPB)

EXECUTIVE SUMMARY

  The RSPB considers that an international cap and trade scheme is feasible and, anyway, already exists in the form of the Kyoto Protocol's Trading scheme. This scheme is deficient in a number of ways, including the way in which its caps were set, its limited number of participants and its compliance and enforcement mechanism. However, it can be improved and the alternatives all look less promising in terms of their potential effectiveness.

  However, although we consider that the existing Kyoto Protocol trading scheme should form part of a post-2012 agreement, we do not consider that the emissions trading system should form the framework for negotiating any future agreement. In our opinion, to focus on emissions trading during the UK's chairmanship of the G8 would be a mistake. It is too technical and specific.

  The imperative for the G8 should be simply to start the international negotiations on the international climate change regime post-2012, and these negotiations should begin with no preconditions regarding organising principles, such as contraction and convergence, or delivery mechanisms, such as emissions trading. To be effective in the longer term, the G8 must focus on restarting the negotiations and not be distracted by side issues. The G8 and rapidly industrialising developing countries should together initiate the review of the adequacy of the commitments in the Climate Change Convention.

  A key task for the UK's Presidency of the EU should be to review its progress towards meeting its emission reduction targets. The review should initiate a process for ensuring that existing EU policies and measures are fully implemented in member states, strengthening those measures and developing new ones.

INTRODUCTION

  1.  The RSPB is Europe's largest wildlife charity with over one million members. We manage one of the largest conservation estates in the UK with 182 nature reserves, covering more than 126,846 hectares. The RSPB is part of the BirdLife International partnership, a global alliance of independent national conservation organisations working in more than 100 countries worldwide.

  2.  We consider that human-induced climate change poses the biggest long-term threat to global biodiversity. A recent paper in Nature indicates that in a sample region covering about 20% of the Earth's land surface "`15 to 37% of species in our sample of regions and taxa will be `committed to extinction' as a result of mid-range climate warming scenarios for 2050."[1]

  3.  To avoid such a catastrophe, greenhouse gas emissions need to be cut hard and rapidly. We therefore support policies and measures which reduce the anthropogenic greenhouse gas emissions that cause climate change. We particularly favour emissions trading schemes as economically efficient means of reducing emissions and are thus supportive of the overall objective of this inquiry: to assess the feasibility of such schemes as framework for negotiating a "post-Kyoto" agreement or, as we would put it, a post-2012 agreement.[2]

  4.  We were actively involved in the development of both the Kyoto Protocol and EU emissions trading schemes and thus have practical experience of cap and trade schemes, including compliance assessment and enforcement. We consider that emissions trading can be at the core of a post-2012 climate regime. Indeed, it is already the main emission reduction delivery mechanism in the Protocol, although the current system is not perfect and could be improved.

  5.  However, we consider that to focus on emissions trading during the UK's chairmanship of the G8 would be a mistake. The imperative is to start the international negotiations on the climate regime post-2012, and these negotiations should begin with no preconditions regarding organising principles, such as contraction and convergence, or delivery mechanisms, such as emissions trading.

  6.  The international climate change process has been stalled for some years now, partly because major developing countries considered that major developed countries, including the EU and Japan, were attempting to impose preconditions on the post-2012 negotiations. We should not repeat this mistake. Neither should we make our main objective the linking of differing trading schemes, such as linking the EU scheme with the prospective Japanese and US state level schemes. Whilst this may be worthwhile, it is certainly not a solution to the problem of climate change because it is insufficiently comprehensive in the scope of emissions it would include. As an aim for the G8, it would be a tacit confession that we had given up hope of an all-inclusive, global climate regime.

INTERNATIONAL EMISSIONS TRADING SCHEME

  7.  The RSPB believes that an international emissions trading scheme is feasible, although there are several factors that make it hard for a global regime to be as effective as a national one, many of which are highlighted by the deficiencies in the Kyoto Protocol's trading regime. In this section we discuss, in turn, the key features that an ideal emissions trading regime should possess, how an international regime might fall short of the ideal and how such deficiencies might be corrected, if at all.

The cap and how to set it

  8.  The magnitude of the cap determines the environmental effectiveness of any cap and trade regime, assuming that compliance can be enforced. It should ideally be set at a level that will solve, or at least begin to solve, the environmental problem it is intended to address. A significant cap is also needed to drive trading, for if the cap is set too low, none of the participants will need to trade. In addition, the cap should ideally be set independently of the participants, who might seek to dilute it, and at a single level for all.

  9.  Whilst is it possible, at least in theory, to meet all of these criteria if national governments are setting targets for their own organisations, it is much more difficult to meet all of them in an international scheme. Indeed, even national caps can be set at far lower levels than the scale of the environmental problem would ideally dictate, as recent experience of setting National Allocation Plans (NAPs) in the EU Emissions Trading Scheme (EU ETS) has shown. Also, instead of setting a single, overall cap, the NAPs set different caps for different industry sectors, with the UK, for example, allowing business-as-usual in all sectors other than electricity generation (because that is not subject to international competition).

  10.  Internationally, however, it is inherently more difficult to set a significant cap, in large part because governments are likely to be both the target-setters and the participants, as in the Kyoto system. In such circumstances, there is always likely to be a race to the bottom in terms of setting caps, as each participant attempts to avoid being placed at what it considers to be a competitive disadvantage compared to the others. In the Kyoto trading scheme, the caps were set in a sort of bidding process in which the USA and its negotiating bloc (JUSCANNZ) started by proposing a zero cap (from 1990 levels by 2010) and the EU started by proposing a 15% cap. In the end, most major emitters ended up taking caps of 7 or 8%.[3] This is not an ideal way of arriving at a cap, or rather caps, particularly as some countries took advantage of the process by giving themselves significant emission increases, such as Australia with 10% increase and Russia, which took a target of zero when its emissions had fallen dramatically since the baseline year of 1990. However, it is hard to think of a politically realistic alternative to this type of process.

  11.  There are alternatives to a Kyoto-type process but none appear either promising in terms of approaching the ideal or, indeed, practical from a political standpoint. For example, it would, in theory, be possible to establish a global trading scheme in which an international regime regulated firms directly, but this would be very hard to achieve in practice, both because there would be many participants to regulate and because governments would be reluctant to allow an international body to regulate their industry. Even within the EU, the ETS leaves cap setting up to member states via their NAPs, largely for the latter reason.

  12.  Another option might be to link existing trading schemes or add new schemes to an existing one. The EU ETS might, for example, be linked to the prospective Japanese scheme and to the prospective West and East coast American/Canadian schemes. In terms of cap setting, the disadvantage with this approach is that caps are likely to be set on a completely different basis under the different schemes. Whilst a Kyoto-type process of cap setting has its deficiencies, a process in which different schemes set different caps independently of each other is likely to be even worse.

  13.  A number of organising principles have been suggested as frameworks for setting caps, such as contraction and convergence. Whilst such schemes are usually fair, equitable and would address the climate change problem if applied, it is hard to see major emitting countries locking themselves into tight, long-term emission limitation frameworks. Under Presidents Bush senior, Clinton and Bush junior, the USA, for example, has shown no inclination at all to do so. For the USA, and most other large emitters, the reduction target they take, if any, has been an uncomfortable and sometimes nonsensical balance between mitigation costs and the environmental imperative to cut emissions. This is unlikely to change because, even if more nations begin to balance mitigation costs against damage and adaptation costs, the mitigation costs are always likely to be taken more seriously because they have to be borne in the short-term and are easier to estimate.

  14.  On balance, therefore, the Climate Change Convention and Kyoto Protocol cap setting processes are probably as good as we are likely to get. They are, anyway, the only ones that we realistically have. Other, alternatives are likely to lead to outcomes that are even further from the ideal and there is currently no global forum in which to negotiate them.

Participation

  15.  Cap and trade schemes clearly achieve greater emissions reductions if they include more participants (emitters). Economic efficiencies are also likely to be greater if participation is maximised. An ideal cap and trade scheme would include all sources of emissions.

  16.  In practice, no trading scheme is likely to include all emissions for two main reasons. Firstly, there are considerable technical and administrative difficulties in including many small emissions sources, such as motor vehicles. Allocating emissions allowances to any nation's vehicle fleet and then monitoring them would obviously be impractical. There are alternatives to allocating to individual sources, in particular, it is possible to allocate "upstream". In the extreme case, this would entail allocating at the point of fossil fuel extraction from the ground or import to a particular country, thereby capturing all fossil fuel emissions. One difficulty with this approach is that the allocation is to fuel, rather than emissions, and that the fuel will be used for a variety of purposes that yield significantly different levels of emissions. The other difficulty from a political point of view is that because an upstream allocation would encompass all fossil fuel emissions it would be hard to exclude any activities, as governments invariably wish to do. For example, domestic fuels would be included and their price would thus tend to rise, perhaps impeding social policies.

  17.  A key advantage of the Kyoto Protocol's emissions trading scheme is that it avoids this problem completely, by allocating emissions to countries and not directly to sources. This not only potentially allows all emissions to be included in the scheme but also limits the number of participants to manageable proportions, ie the number of nations in the World. Although the Protocol has disadvantages in terms of cap setting, it is almost ideal in encompassing all emissions, although only if all countries participate.

  18.  However, the second main difficulty with having an all-inclusive international system is that developing countries do not have caps under the Climate Change Convention and its Kyoto Protocol. We discuss this problem in detail in the following section on the UK Chairmanship of the G8.

Leakage

  19.  Linked to the question of participation is the question of leakage from the cap, which occurs when emission reduction credits from project-based mechanisms in uncapped players are allowed to be interchangeable with emission allowances issued to capped participants in an emissions trading scheme. The ideal is to have no credits from uncapped participants because they "inflate" the cap, making the target less stringent for the capped players. Also, to have any benefit at all, credits from uncapped players must clearly demonstrate that they arise from activities that would not have occurred otherwise—which is intrinsically very difficult to demonstrate.

  20.  Yet almost all trading schemes allow credits from uncapped players. The UK trading scheme does, the Kyoto Protocol does and the EU ETS does, by allowing the use of Kyoto project credits from uncapped, developing countries via the Protocol's Clean Development Mechanism (CDM). Proponents of project-based mechanisms in developing countries argue that they provide a means of financing carbon limitation projects in poorer countries which would not have occurred otherwise and which offer cheaper credits than could be obtained at home.

  21.  This may be true but, on the other hand, not only does allowing such credits mean that developed countries cut their emissions less than they would otherwise do but it sets a very bad example to developing countries. It perpetuates the dubious assumption that reducing emissions is expensive and to many developing countries it seems as though, having been largely responsible for creating the climate mess, the developed countries are now paying the developing ones to clear it up for them.

Compliance and enforcement

  22.  A difficulty with all international regimes is that it is almost impossible to enforce compliance. Indeed, just assessing compliance can be hard in any emissions control agreement, both because of technical difficulties in estimating some emissions and because of the fact that in all agreements countries report on themselves. However, the Kyoto Protocol has a basically sound reporting and review process. It conducts in-depth country reviews where reviewers actually visit countries, similar to some arms control agreements. It is probably as close to the ideal as one is likely to get in an international agreement.

  23.  Enforcement, however, is intrinsically hard in any international agreement. The reasons for this are obvious: international agreements are not like national laws, backed up by courts and police forces to enforce them. They are basically contracts between states, into which states enter voluntarily and from which they can withdraw. There is ultimately no way of enforcing them other than by extreme measures, such as invasion or trade sanctions.[4] It is possible to impose fines but if these are set too high, states will either not pay them, or withdraw from the treaty or both.

  24.  Most "enforcement" in most international agreements, consists of shaming recalcitrant states. This can be effective, as when Russia was found to be in non-compliance with the Montreal Protocol and Russia found the experience of having to say "sorry" deeply humiliating. Indeed, some Russian's cite it as one of the reasons for their caution about ratifying the Kyoto Protocol.

  25.  The Kyoto Protocol's compliance group, which negotiated its compliance procedures, investigated the subject of enforcement over a period of several years. Two potentially practical means of enforcement were proposed, both of which addressed the question of how to penalise non-compliance automatically, without having to retrospectively enforce it, which is impractical. The first proposal came from the USA and involved obligatory borrowing of credits from future commitment periods and the second, from the EU, involved a so-called commitment period reserve.[5]

  26.  The US idea made use of the fact that the Kyoto Protocol sets up emission budgets for each country in each so-called commitment period, within which it must keep if it is to achieve its target. Under the US compliance scheme, if a country exceeded it budget it would have had the number of tons of carbon that it was out of compliance subtracted from the budget in its next commitment period. This could have worked except that negotiations on the targets and budgets for the second commitment period would begin before the end of the first period, when countries would have a fair idea of how much they were likely to be out of compliance. If they thought that they would be in non-compliance, they could thus negotiate their second period target to take of the amount that would need to be borrowed from it. To work, the procedure would thus have to borrow from the next commitment period but one. However, this would mean that compliance was being penalised at least five years in arrears which raising the question of whether it was really fair.

  27.  The EU enforcement idea involved a levy on all transfers of allowances (Assigned Amount Units). The proceeds would accumulate in a central fund until the end of the commitment period when they would be returned to compliant states and withheld from non-compliant ones. Although this would clearly only be effective if non-compliant parties traded significantly, it was assumed that they would do so in an attempt to stay in compliance and so the cash that they had paid out as a levy would be significant.[6] A more important difficulty with the concept was that it was, in effect, an international tax. Finance ministries worldwide tend to strongly dislike international taxes over which they have no control and so the original proposal foundered, although it persisted in a much-modified form.

  28.  As far as we know, no other potentially viable means of enforcing non-compliance in international emissions trading schemes have been proposed. (We do not count the EU scheme as international.)

Alternatives to an International Emissions Trading Scheme

  29.  The RSPB believes there are alternatives to an international emissions trading scheme, but they are unlikely to be as effective. The idea of having a trading scheme under the Kyoto Protocol was mainly a US idea, backed strongly by Canada and Australia. The EU originally saw the regimes mainly as a target setting mechanism and a means of coordinating policies and measures internationally. Their idea was that many mitigation policies could potentially affect competitiveness if not coordinated with other nations, which may be true but it was always difficult to envisage precisely what form coordination would take.







Approach and objectives to climate change during UK presidency of G8 and EU in 2005

UK chairmanship of the G8

  30.  The Prime Minister has already announced that his priorities for the G8 will be climate change and Africa. We strongly support this choice but are concerned that the G8 agenda will fill up with numerous worthwhile but ultimately less important matters, diverting attention from the big issue.

  31.  On climate change, by far the biggest single issue is starting international talks on how to limit emissions after 2012, the end of the Kyoto Protocol's first commitment period. To be effective in the longer term, the G8 must focus on this matter and not be distracted by side issues, such as a further renewables conference with voluntary targets, linking emission trading schemes, encouraging biofuels as part of WTO and CAP reform, and a host of other worthy but less important matters.

  32.  To make progress on tackling climate change a binding international agreement to cut emissions is essential. Without such an agreement, countries will always pull back from making substantial emission cuts because of fears of loss of competitiveness, as we have recently seen in the race to the bottom by EU countries in setting targets for the EU ETS. Also, even to begin to stabilize atmospheric concentrations of greenhouse gases, and hence limit global temperature rise, all countries need to constrain their emissions, certainly the larger emitters, as mentioned earlier.

Political background

  33.  Involving all countries in a global agreement may be essential but it will be hard to achieve, as is shown by experience of the Kyoto Protocol. Not only has the USA left the Protocol but none of the developing countries, including the rapidly industrialising ones, have commitments to limit their emissions. Ethically, it is right to say (as the UN Climate Change Convention does) that developed countries have a historical responsibility for causing the problem of climate change and that they should take the lead in clearing it up. However, this does not solve the practical problem of limiting climate change, as is indicated by the figure below. If developed country emissions are not cut hard and developing country emissions at least constrained, climate change will continue indefinitely and catastrophically.


  34.  In the USA the Bush Administration has been denounced for pulling out of Kyoto, but it is sometimes forgotten that even if the President asked the Senate to ratify the agreement then the Senate would probably refuse. The Byrd-Hagel Senate Resolution of 1997 clearly stated, just prior to the Kyoto meeting which led to the Protocol, that the Senate would not ratify a treaty on climate change that did not include "meaningful participation" by at least some, more developed, developing countries. The Senate passed the resolution by a vote of 95 to 0. The issue of rapidly industrialising country participation is therefore not simply a practical matter of reducing emissions but it is of key importance in achieving US engagement in any agreement.

  35.  Moreover, since 1997, the USA has done very little to limit its emissions and they have continued to climb steeply under both the Clinton and Bush Administrations. It is thus arguable whether it is now possible for the USA to achieve its Kyoto targets, and any US administration, and probably any Senate too, would argue that it is not.

  36.  It is also extremely unlikely that any developing country will take on legally binding emission reductions in the near future. All of the major, rapidly industrialising countries are parties to the Kyoto Protocol, under which they have no obligations to limit emissions, certainly before 2012. Moreover, the developing country negotiating bloc (the G77 and China) firmly adheres to the position that developed countries should take the lead in reducing emissions.

  37.  Until 2012, the end of the first Kyoto Commitment period, the prospects of either the USA or major developing countries agreeing to limit their emissions under an international treaty are therefore slim. It has been argued that an agreement other than Kyoto might be set up, in the form of a "coalition of the willing", but this has a number of serious disadvantages. It could potentially undermine both the Protocol and, more importantly, its parent convention, the UN Framework Convention on Climate Change (UNFCCC) to which almost all countries belong, including the USA. Also, a coalition of the willing is, by its nature, likely to achieve little more than its members would do anyway. It is the unwilling that need to be persuaded into agreement.

  38.  For the post 2012 period, however, the prospects of agreement look better. Most US politicians from both parties now accept that climate change is a serious problem, as is shown by the climate-related measures being taken by Governor Pataki in New York State, Governor Schwarzeneger in California and by Senator McCain (Republican, Arizona) and Senator Leiberman (Democrat, Connecticut) who tabled the "Climate Stewardship Act" that narrowly failed to pass through the Senate by 43 to 55 votes in October 2003. (McCain and Lieberman will resubmit the Bill.)

  39.  Rapidly industrialising countries, especially China, also take climate change increasingly seriously. Qin Dahe, head of China's Meteorological Administration, recently told the Chinese Academy of Sciences that "global warming brought about [an] unbearable, irreversible and sustained effect to the Chinese economic and social development."[7]

Initiating post-2012 negotiations

  40.  The G8 meeting in 2005 is an almost ideal time to initiate talks about action on climate change post-2012. That date is still a long way off in terms of the typical governmental timescale of four or five years and so even wary governments may be willing to start talks as long as there are no preconditions about commitments. A climate-skeptical US Administration and major developing country governments that fear taking on emission reduction targets could, at a high level, agree to start talks.

  41.  The high level commitment is, however, important because, without it, executive officials are likely remain mired in their present, "do nothing" positions as they have for three or four years now. It is also vital that the UK Chair of the G8 engages not only the G8 members but also major developing countries in any G8 decision. A G8 resolution without the active involvement of at least some major developing countries is likely to raise suspicion and antagonism. One idea is to hold a "G10" or ideally "G12" meeting of the G8 leaders together with those from China, India, Brazil and South Africa

  42.  A G8 and developing country decision should not be complex. At its most basic, it need only call upon the parties to the UNFCCC (to which all G8 members and all major developing countries belong) to conduct a review of the adequacy of the commitments in the Convention. The Convention specifically provides for such a review. Indeed, it is overdue. Article 4.2.d. of the Convention says that it "shall take place no later than 31 December 1998". The review, even if based only slightly in reality, should conclude that the commitments in the Convention are inadequate and act accordingly to take corrective action. (The first review of the adequacy of commitments in 1994 concluded that the commitments were inadequate and led directly to the process that concluded with the Kyoto Protocol. It would be inconsistent to conclude that the commitments were adequate now when they were not in 1994.)

  43.  It is particularly important that no attempt should be made by the G8 to impose preconditions on the negotiations, especially in the form of organising principles, such as "contraction and convergence". These should emerge during negotiations, not before them, and preferably from developing countries rather than the G8. The only guiding principle that should be employed is one that is already agreed as the ultimate objective of the Convention which is:

    . . . stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.

  44.  At present, it seems unlikely that this globally agreed objective will be met. As may be seen from the figure on emission projections for major countries, stabilsation of atmospheric concentrations at any level at all is clearly not going to occur without significant global cuts in emissions. According to the Intergovernmental Panel on Climate Change:

    "natural systems can be especially vulnerable to climate change and some will be irreversibly damaged or lost", and

    [there will be] "a general reduction in crop yields in most tropic, sub-tropical and mid-latitude regions."

UK presidency of the EU

  45.  The latest available data for 2002 shows that the EU 15 has achieved only a 2.9% reduction in greenhouse gas emissions from 1990 levels. As a result, the EU is not on course to meet its Kyoto target of 8% by 2010, let alone a 21% target, and clearly needs to do much more if it is to achieve it, both by strengthening existing policies and measures and introducing new ones. The figure below, from the European Environmental Agency, shows how well, or badly, the EU 15 countries were performing in attaining their burden-sharing targets in 2001.[8]


  46.  A key task for the UK's Presidency of the EU is thus to review its progress towards meeting its emission reduction targets and initiate a process for ensuring that existing EU policies and measures are fully implemented in member states, strengthening those measures and developing new ones.

  47.  The UK will have strong legal grounds for conducting a thorough review of policies and measures during the Presidency. By 2005, the developed country parties to the Kyoto Protocol are obliged to have made "demonstrable progress" in achieving their commitments under the protocol. A review of both implementation and of the adequacy of policies and measures is clearly essential in demonstrating progress, or not. (The EU inserted the "demonstrable progress" text (Article 3.2) into the Protocol and so it is particularly important that the EU shows leadership in implementing it.)

  48.  Measures that require strengthening and adding to at the EU level are similar, or in some case the same, as those at UK level. In particular, a key task will be to ensure that methods used in drawing up National Allocation Plans for the EU ETS are far better harmonised, firmly set cap so as to ensure that competitiveness concerns are minimised and more challenging NAPs are set for the second phase of the scheme. (The Emissions Trading Directive already allows for such harmonisation.)

  49.  As at home, the UK should also do much more to restrict transport-related emissions during its presidency of the EU. The UK should work to put in place an EU-wide emissions charge on aviation and set in train a process for opting aviation emissions into the EU ETS. They should also strive to put in place an EU-wide well-to-wheel carbon tax on all road vehicle fuels.

CONTRIBUTIONS BY INDIVIDUAL UK GOVERNMENT DEPARTMENTS

  50.  DEFRA has the most expertise in this area, on both the science and policy, and should thus take the lead on any national or international initiative. The FCO, DTI and DfID also have valuable experience and expertise to bring in specific areas and should thus be part of any DEFRA-led team. HMT have paid increasing attention to the use of economic instruments for environmental purposes in recent years and thus have a role to play, although they may lack much relevant experience internationally. DfT would benefit greatly by participating in work led by others.

  51.  DEFRA, DTI, DfID and the FCO should have sufficient experience of working together on climate change to deliver a coherent UK agenda to which HTM could contribute in some areas.

October 2004







1   Chris D Thomas et al, Extinction risk from climate change, Nature, 8 January 2004. Back

2   We are concerned that the phrase "post Kyoto" implies the abandonment of the Kyoto Protocol, whereas post 2012 implies nothing more than that the nature of the international climate regime after the Protocol's first commitment period that still needs to be negotiated. Back

3   JUSCANNZ was the name for the negotiating bloc made up of Japan, the USA, Canada, Australia, Norway and New Zealand. Norway has now left the Group but Russia has now joined and it is now know as the Umbrella Group. Back

4   Agreements that regulate trade can, and do, initiate or approve of sanctions. CITES, for example, banned international trade in all wildlife products with both Italy and Thailand in 1992, until they complied with treaty provisions on domestic enforcement. Back

5   There is still a commitment period reserve in the ancillary agreements under the Kyoto Protocol but its is not the same as that originally proposed by the EU, although it metamorphosed from it. Back

6   It was proposed that the levy that was withheld might go towards funding emission limitation projects in developing countries. Back

7   "Scientist suggests to set up national policy on climate change", People's Daily Online, 7 June 2004. Back

8   Greenhouse gas emission trends and projections in Europe 2003, European Environment Agency, 2003. Back


 
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