Examination of Witnesses (Questions 20-35)
MR CHARLIE
KRONICK, MR
CÉDRIC PHILIBERT
AND DR
SALEEMUL HUQ
19 FEBRUARY 2008
Q20 Jo Swinson: Japan has recently
suggested changing the baseline year to 2000 to encourage China,
India and others to sign up. Do you think it matters when the
baseline year is as long as there are emission reductions from
that or do you think that will just lead to a weakening of the
targets and not achieve the severity of the cuts that we need?
Mr Kronick: What matters is the
carbon concentrations to the atmosphere. It does not matter when
you start counting. It is like Weimar Germany with wheelbarrow
loads of cash. It does not buy you any more. It does not matter
when you start counting as long as we actually achieve the reductions
and achieve reductions in concentrations in the atmosphere. I
think it is disingenuous and probably not very helpful.
Q21 Colin Challen: Just on that contraction
and convergence point, the World Resources Institute also does
not support C&C but they do recognise that convergence is
an arithmetical certainty. Why not just hop on the bandwagon?
I will leave that point. The Government says that the CDM is essentially
sound. Do you agree with that?
Dr Huq: I think the CDM in general
has been, from the developing country's perspective, a relative
success story in that it has brought opportunities for carbon
reduction activities, particularly in a number of the large emitting
countries like China, India and Brazil. It has brought a new cohort
of private sector people in those countries that are involved
in these projects that are pro doing more on mitigation based
on the incentives that CDM provides. There are a couple of problems
that have arisen which are sort of second generation problems
or they could have anticipated but they are now arising: one is
inequity and distribution. There are only a handful of countries
that are getting CDM projects. The vast majority of the poorest
countries, particularly in Sub-Saharan Africa are not getting
CDM projects. This inequity of access to this particular market
is something that is not good for the negotiations because these
countries had anticipated they would get some benefits out of
CDM. If they are not getting them it may turn them off in a future
negotiation if we want to rely on more market-based activities
like the CDM. The twin objective of the CDM along with carbon
reduction was to promote sustainable development. In practice
it has not done very much on that. It has left it to countries
to define. Countries have not defined it very well. Most projects
are of a scale that they really do not benefit poor communities
and poor people, particularly in the land use sector. There may
be a need for tinkering with or expanding the CDM regime to allow
more access to smaller scale projects. There are some opportunities
there, but that might be something that would need to be tweaked.
My view is that on the whole it has been relatively successful,
but it has had some problems that need to be addressed in the
second generation, in the post-2012 agreement.
Mr Philibert: I would be even
more severe and say that even with respect to the first objective
it fares relatively poorly. Nuclear is not in, CCS is not in and
certainly at the IEA we support the inclusion of carbon dioxide
capture and storage. We have analysed that very recently in detail.
Energy efficiency improvements have difficulties finding their
way in the complex additionality procedures for a very good reason,
they are almost always profitable and therefore they should be
considered part of the baseline even if they do not happen because
of different barriers. It is difficult for energy efficiency improvements
to be approved as CDM projects. Renewable projects, at the opposite
end of the spectrum, are too costly to find their way into the
CDM where they have to compete with relatively cheap forestry
projects or industrial gas projects. At the end of the day, it
takes a very narrow spectrum of what we need and it does not take
the big chunks of emission reductions that are needed in the future.
It has a very important feature, which is to educate people on
both sides, in developing and developed countries, on the virtues
of the flexible mechanism, on the fact that there are plenty of
relatively cheap options in developing countries that could be
undertaken provided there is someone willing to pay for them in
the industrialised world and that is a good thing because it will
help narrow the viewpoints in future negotiations. At the end
of the day, as happened in the past when people and governments
have moved from regulation to market mechanisms, they usually
tend to start with project-based mechanisms and they usually end
up with full market-based mechanisms. I would suggest that we
must find ways to incorporate developing countries in broader
market-based mechanisms, such as emissions trading. The virtue
of the CDM would have to pave the way for this to happen.
Q22 Colin Challen: You mentioned
at the very beginning nuclear and CCS. Is it the IEA's view that
nuclear should be included in some kind of flexibility mechanism?
I had understood the nuclear industry to be saying that it is
going to be building 400 new nuclear power stations around the
world anyway. Where is the additionality that the CDM should bring
to carbon reduction if that is the case?
Mr Philibert: The view is that
we need a big diversity of emission reduction technologies and
arenas and they have to be accounted for in a mechanism that needs
to be global and not necessarily project based. I am not necessarily
expressing the views of all IEA governments here. Secondly, the
IEA is not having views on the CDM, it is having views on the
bunch of things that will be needed in the future and we must
find ways to have them deployed in all countries when it is safe,
when it is reasonable and when it is necessary. I am not necessarily
talking about all countries of the world going nuclear or all
countries in the world going CCS or whichever, it depends on the
local and national circumstances, but we must find ways to have
a mechanism that is powerful enough to bring in all types of emission
reductions. Halting deforestation is not in the CDM either, reforestation
is limited, nuclear is not in, CCS is not yet in but it may be
in in the future, energy efficiency is difficult and renewable
energy is too costly. What does that leave us? HFCs and basically
that is it. It is very narrow.
Mr Kronick: Which is the big problem
with the CDM. The bit that is sound is the name, Clean Development
Mechanism. Unfortunately, the incineration of HFCs is not contributing
to development nor is it particularly clean. The real issue is
not whether or not the CDM should include this technology or that
technology but actually to look to development and the development
pathway and trajectory and then develop that mechanism to support
those objectives. Under those circumstances it would be unlikely
to include CCS. It almost inevitably would not include nuclear.
It would include bottom-up changes in particular communities that
were suited to those communities to aid development and to take
them off a development pathway that is going to be carbon intensive
which will then have to be decarbonised later. One of the biggest
problems has been referred to, which is that at the moment there
is a financial mechanism that implies there is a functioning global
carbon market when there is not. So the reality is that the EU
ETS, for example, which has a very relaxed cap on its emissions
and lots of jiggery-pokery on allocations, has the potential to
buy in enormous amounts of avoided emissions from the developing
world in the future, which could actually discourage countries
within the EU ETS from making emissions reductions at home. There
is a real confusion in that the illusion that there is a functional
global carbon market, combined with the poor targeting of the
way the CDM has worked, is not leading to particularly good outcomes
either for us as contributors to it, or for the countries that
are getting money. I accept Saleemul's provisos for that, but
I think the problem is not just the mechanism, it is what we are
expecting it to do.
Q23 Colin Challen: What needs to
be done to prevent in future the kind of scams that we have seen
operated under the CDM? I am particularly thinking of HFCs. There
seems to be a whole number of other scams where people are not
producing the goods. How should it be tightened up?
Dr Huq: Obviously it needs tighter
regulation and scrutiny. CDM is actually well regulated compared
to the voluntary market which has no regulation whatsoever. The
HFCs in China are low hanging fruit which have been plucked so
we do not need to worry too much about more of them coming on-stream.
Obviously as we learn the process for different kinds of technologies
and we get better at understanding them and monitoring them the
regulations will follow. I am not as pessimistic about some of
the flaws in the system that have been identified so far overturning
the benefits that have come out of it so far, accepting that it
is a narrow band of activities that are allowed at the moment.
Q24 Colin Challen: You do not think
the system is simply prone to some of these flaws? There are people
who take that view. Cornerhouse, for example, whose analysis you
might be familiar with, seem to suggest that you cannot improve
these things because they will always be prone to failure.
Mr Kronick: I would never criticise
my colleagues at Cornerhouse, but I think they are in danger of
throwing out the Kyoto baby with the trading bath water. I would
agree almost entirely with their analysis that global carbon markets
are not delivering what they were supposed to deliver, which is
emission reductions. What is important about the CDM is the recognition
within the Kyoto framework that there is an opportunity for climate
change being the vehicle for investing in a genuinely sustainable
development pathway in itself. I just do not think that the CDM
is currently doing it. One of the things that would change the
nature of how we in the north or developed countries look at the
CDM would be if we had to meet our emission obligations domestically
first and this has been the Greenpeace position consistently for
a long time. If the agreed minimum target to stay under two degrees
is 30% reductions by 2020 from developed countries, that we deliver
30% reductions from developed countries at home and then invest
on top, I think it would change fundamentally the nature of the
kind of investments you would make in terms of getting those benefits
there in the developing countries and not actually trying to bank
them here.
Mr Philibert: I tend to disagree.
If you do everything at home you will just not put a cent in the
CDM and in emission reductions in developing countries. You need
to think of mechanisms when you set targets. If you build a flexible
mechanism after you have set targets you will almost always find
that your target is too weak, it is too easy because you start
with a target that seems very difficult and then you build a number
of mechanisms that bring you in a lot of cheap emission reductions
and so you end up thinking you could have done better. So you
have to set targets in the light of the overarching framework
you have been building. If we want to go to deep cuts in emissions
we will have to find the mechanisms that embrace what is possible
in both developing and developed countries. My guess about CDM
is that it would have to move from a project-based mechanism to
a market-based mechanism that is some form of country target for
developing countries. Of course, not all, not the first time,
not bidding for all in the next period, but moving from project
base to broader mechanisms is probably a key to success.
Q25 Colin Challen: Could we have
your two views on this issue of how it could be broadened? I guess
nuclear has already been ruled out, but CCS and deforestation
projects, should they be included in a CDM?
Mr Kronick: Greenpeace has put
forward a possibly over-complicated but fairly complete proposal
for how avoided deforestation could be tackled. We feel very strongly
that 20% of the global climate problem should not be bolted on
to another mechanism. There needs to be both global governance
and a global fund specifically for avoided deforestation. There
has been a consistent view that project-based deforestation and
reforestation projects are not robust enough in climate accounting
terms, they should not be part of it at all. We have got a very
clear view on that. I do not, and we do not, have a view about
carbon capture and storage in principle, but there seems to be
a very strong consensus, certainly from the power generating sector
and from the industry, that as a viable proposition, never mind
globally but in the developed world, it is not going to be contributing
significantly to our power sector emission reductions before 2020,
maybe 2025 or maybe 2030. That is the wrong horse to be backing.
If the sector itself and the industry wants to put money into
carbon capture and storage because they believe it is going to
deliver sooner, by all means, but this mechanism is intended to
facilitate economically efficient action now in the short term
in the developing world. We would not favour including carbon
capture and storage for those reasons, not because it could never
work or for any other kind of principle proposition, but, like
nuclear, it is largely too little and is largely going to be too
late.
Q26 Chairman: You were talking earlier
on about the fact it is deplorable, everyone is burning their
coal and building more coal fired power stations. That is what
is happening and it is going to happen. It is no good pretending
China is not going to burn its coal; it is going to burn its coal.
Is not the priority that should be attached to CCS much higher
than it actually is? If we are not going to have CCS, an awful
lot of other things we do are not material, they are not big enough.
Mr Kronick: I would make a counterproposition
and I think it goes back to what Cédric said earlier about
the way we look at energy. If we want to maintain globally and
expand globally more or less the same energy system we have got
now, which was devised in the 1920s, which was to build enormous
power stations which waste two-thirds of their energy as wasted
heat, yes, I would agree with you, if that is the model we are
going to propose for the global development of the energy sector.
I would say it would be mad to do that. It is unbelievably wasteful
in resource terms, it locks us into a development pathway that
is unbelievably resource intensive and does not make use of current
technologies that are available in terms of combined heat and
power never mind future technologies.
Q27 Chairman: Which are the countries
with abundant coal reserves that are not setting an example by
not developing more coal—
Mr Kronick: It is not surprising
that they are not. The US is not setting an example. Their projected
rate of increase in coal fired power stations is even faster than
that of China proportionally as is the UK. If we are going to
challenge that paradigm we need to do it here first.
Q28 Mr Chaytor: I want to come back
to the question of avoided deforestation. Why does Greenpeace
feel so strongly that this issue cannot be dealt with within the
CDM? Could you just say a bit more about the mechanisms that you
have devised separately?
Mr Kronick: I did not write this
paper. Although I am a very keen supporter of it, I do not know
every detail of it. What we tried to do with our avoided deforestation
mechanism—and again it is an example of a model that could
work, it is not a prescription—is to say that the only way
that it can significantly contribute to reducing emissions globally
is for it to take national baselines. It is not a project-based
system, it is one that looks at countries which are already engaged
in deforestation as well as ones that are not because you have
to be able to include the ones that have large intact forests,
like the Congo Basin and the countries within the Congo Basin.
There has got to be an incentive for them not to cut their forests
down. That immediately takes it out of the range of the CDM and
has to put it into an external mechanism. I think it is also largely
a question of scale. It is a big, big part of the problem and
potentially a big part of the solution and we think that it merits
a robust mechanism that stands alone. We are pretty clear that,
whatever else you think of global carbon markets and I know there
is a wide range of views, avoided deforestation credits should
not be part of that system for the simple reason that the sheer
bulk of that can overwhelm the system, bring the unit costs of
emission reductions way down and have absolutely the wrong effect,
which would not be to encourage reducing emissions at home as
well as deforestation emissions. At the risk of inventing yet
another global bureaucracy, we think this is one that is worth
taking a chance on.
Q29 Mr Chaytor: Is not the issue
about flooding the market with cheap credits best dealt with by
making the emission reduction targets more stringent? If you have
tough targets then that deals with the question of cheap credits.
Mr Kronick: I think it is both.
As well as tough targets at home we need to protect not just the
biomes where these forests are but also the livelihoods of people
who live in them. So "yes" would be my answer.
Mr Philibert: If you can shape
country-wide targets for a number of developing countries presumably
everything will count exactly as is the case for industrialised
countries today. If you deforest the UK this will count in your
emissions and you will have to reduce other emissions, so if it
is cheaper not to deforest you will not deforest and that will
be the same for other developing countries. Of course, not all
will have country-wide targets very soon and therefore any specialised
mechanism --- I have nothing against specialised mechanisms, but
the ultimate purpose should be to account for every emission and
put a cap on all of these emissions. This way what you do with
nuclear or CCS or renewables or energy efficiency will be counted
the same because it will impact on your emissions and therefore
if you have a cap on emissions everything is included at the outset.
Mr Kronick: That is true. What
is important to remember is that this mechanism is likely to target
countries to a large extent which are not likely to have emission
reduction targets any time very soon. It is more than just about
emissions. It also includes issues around biodiversity and it
includes issues around the livelihoods of people who depend on
forests for those livelihoods and who actually live there. I think
it is important to remember that just as climate change is not
only about emissions and it is about some of the tensions between
what our aspirations are nationally and internationally in terms
of development, avoiding deforestation is not just about keeping
the carbon locked up. For the people who live in those countries
it includes that, but quite a lot more as well.
Mr Philibert: Before considering
incentives to halt deforestation we should halt our incentives
to deforestation. The 10% objective for biofuels at the EU level
is a real incentive to deforestation. Maybe we should start with
that.
Q30 Chairman: You are preaching to
the converted here about that!
Mr Kronick: This had better be
noted down because we could not agree more!
Q31 Mr Chaytor: I want to ask Dr
Huq about the negotiations over deforestation. Dr Huq, do you
feel that progress is being made over the practicalities of it,
the questions of verification and ownership rights and the distribution
of benefits?
Dr Huq: The progress that has
been made in Bali is on the principle that it needs to be incorporated,
but the devil is always going to be in the details and we have
not dealt with them yet. Perhaps I could also answer your previous
question in terms of whether or not it should be part of the CDM.
My own view is that it complicates the CDM too much and the CDM
cannot bear avoided deforestation as a project-based mechanism,
it is not compatible. I would agree with Charlie that it needs
to be dealt with as a separate entity and it is big enough to
warrant being dealt with and coming up with rules and regulations
that deal with it and recognise the importance of it, finding
ways of providing incentives to countries to avoid deforestation,
but doing it in a manner that is sensible for that particular
problem and not lumping it into a project-based CDM. It is one
of the reasons why the land use restrictions on CDM were there
in the first place. It was very difficult to include these other
issues like deforestation and conservation.
Q32 Joan Walley: How are we going
to get the technology transfer to do everything that is needed
in developing countries? Given the amount of money that Stern
said would be needed per year by 2015 and given where we are at,
which is way short of that, how are we going to close that gap
between the amounts of money that are needed for adaptations?
Dr Huq: One of the building blocks
of the Copenhagen Agreement that has been agreed in the Bali roadmap
to Copenhagen is, on the one hand, mitigation and, on the other
hand, adaptation and then crosscutting themes, including innovative
financing and technology transfer. I think there is a lot of new
thinking going on about the need for innovative financing both
for mitigation technologies as well as for adaptation in that
the amounts of funding that are going to be needed are still not
exactly known, but the ballparks are in the many tens of billions
of pounds a year, which are simply not going to be available out
of development assistance-types of funds so we are going to have
to find new and innovative ways of raising them. One interesting
and, I would say, fairly innovative mechanism is something called
the Adaptation Fund under the Kyoto Protocol, which is not based
on contributions from rich countries but is based on a 2% levy
on all CDM transactions. The reason I say this is innovative in
that it is a transaction between an entity in a developed country
that has a Kyoto target and an entity in a developing country
that enter into an agreement for the purchase of CERs, Certified
Emission Reductions. They go to the CDM Board, which is an international
body sitting in Bonn, to get the certification. Once the CDM Board
certifies them, for every 100 CERs they certify they keep two
CERs and they put them in the Adaptation Fund. This money has
not gone through any national Exchequer, it does not belong to
any particular country. It is an international transaction and
an international tax on an international transaction. In my view
that is a very innovative mechanism that could be emulated and
expanded. There are already arguments being made by a number of
countries that the 2% adaptation levy which is now imposed only
on the CDM should also be imposed on other flexible mechanisms,
including joint implementation and the European Trading Scheme,
which would increase the levels of funds that would flow on a
regular basis into this Adaptation Fund by probably an order of
magnitude. With the 2% levy on CDM alone it is estimated it will
generate a few hundred million pounds over the next few years.
If it were applied to the other flexible mechanisms that would
go up by an order of magnitude to several billion. One could think
of going beyond applying this kind of an adaptation levy on simply
mitigation activities alone. Why not apply them to polluting activities?
One example of such a proposal that has been put forward is by
Benito Müeller in Oxford and it is called the International
Air Travel Adaptation Levy, which is essentially putting a 2%
levy on all international passenger flights, which would then
put in the order of £10 billion a year into such an Adaptation
Fund.
Q33 Joan Walley: Has Stern not said
that we need $69 billion a year up to 2015?
Dr Huq: That is the order of magnitude
that is being estimated, yes. I am building up from where we are
rather than where we ought to be and finding ways of getting to
where we ought to be. Where we are right now is at a few hundred
million put into the LDC fund and the special climate change fund
by rich countries. It is nowhere near the order of magnitude that
Stern suggests. I am arguing that rich countries will not put
in development assistance by many orders of magnitude bigger than
they have done already. They have had a 30-year old target of
reaching 0.7% and most of them have not met it. It is simply not
going to come out of development assistance. It is going to have
to out innovative ways of taxing the pollution itself. These are
what I am arguing are some ways of thinking of doing that.
Q34 Joan Walley: Do you see any indication
of money coming in from auction permits?
Dr Huq: Absolutely. I think that
is a very good way. The Norwegian government has already allocated
a percentage of their next allocation of permits which are going
to go into avoided deforestation. I think that is certainly worth
pre-allocating from the governments when they do their allocations.
Mr Kronick: Let me go back to
our proposal for avoided deforestation. If such a percentage was
agreed for developed countries to apply to their emission reduction
commitments we are talking of the order of €10-14 billion
a year in terms of payments for avoided deforestation. I think
the point that Saleemul has made so well is that it is not going
to come from one big pot. There is going to have to be a variety
of mechanisms that deliver funds in particular ways. One of the
things that colleagues of mine are now pursuing, in relation to
these ideas of sectoral targets from developing countries in terms
of emission reductions from their electricity sector, is the possibility
to develop the equivalent of feed-in tariffs for premium prices
paid for the development of renewable infrastructure in those
countries, particularly in places like China and India where there
is going to be infrastructure development with a lot of money
spent on it in the short term. It targets the money specifically
to partially where your question came from because it is not just
for adaptation, but how do we make sure that in the very limited
timeframe available the investment in infrastructure for energy
goes the right way and not the wrong way? Those kinds of mechanisms,
such as a feed-in tariff, which have been very powerful in driving
the development of renewables where they are applied, could work
in those developing countries as well. It is going to take quite
a lot of creativity and a willingness not to depend solely on
a single mechanism. I am going to start to sound boring here,
but it cannot just be about the carbon price, it is going to have
to be more directed than that.
Mr Philibert: I agreed with everything
you said before, but now I have to disagree on your very last
point! Carbon pricing and flexible mechanisms will probably be
the most powerful technology and finance transfer mechanism we
can build and for one good reason, it is because it is not only
public money, which is getting scarcer and scarcer. It is using
the money of the rich societies, putting targets on all activities
and allowing all sources to buy emission reductions wherever they
are cheapest. I think these will be the largest providers of funds
in developing countries due to climate change. This does not mean
that other mechanisms will not be useful and a specific mechanism
for halting deforestation, specific funding for capacity building,
things that carbon mechanisms cannot easily support will be needed
from government support. The bulk of the money would probably
have to come from a big framework for emission reduction with
targets in almost all countries, as many countries as we can.
Q35 Joan Walley: Looking at the other
side of the coin in terms of the developing countries in receipt
of the adaptation funds, what do you think the prospect is of
getting very tight sustainability standards so that they are only
going to be going forward with projects which have tight sustainability
objectives embedded in them?
Dr Huq: On that particular front,
I would say it is perhaps not a great worry because from most
of the developing countries' perspectives they see both mitigation
and adapatation activities, or any general activities to deal
with the climate change problem, as part of their development
problem as well. They are the ones who want adaptation and mitigation
to be compatible with sustainable development, so it does not
have to come as a conditionality from the north; it is something
they have always argued for in any case. I do not see that as
a problem where they are going to spend on things that are not
going to be promoting sustainable development. Almost by definition,
climate change activities in developing countries have to be done
in a manner that does promote sustainable development as opposed
to short-term development.
Chairman: Thank you very much indeed.
This has been a very interesting and useful session. We are grateful
to all three of you for coming in. Thank you.
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