Memorandum submitted by Jennifer L Morgan,
E3G
EXECUTIVE SUMMARY
The Bali Roadmap outlines the essential elements
that will need to be negotiated within the next two years in order
to achieve an ambitious post-2012 agreement. It does not, however,
provide sufficient guidance on what warming levels must be avoided,
and thus what exact emissions reductions are required to meet
such a target. This will be the main core of the negotiations
moving forward to be completed by 2009 in Copenhagen. If the goal
is to avoid the worst impacts and keep global average temperature
below 2 degrees in comparison to pre-industrial levels, the Intergovernmental
Panel on Climate Change finds that global emissions will have
to peak and reduce in the next 10 to 15 years along the pathway
to reduce global emissions well below half of the levels in 2000
by the middle of the century. In order to keep both these goals
in sight, and demonstrate that transitioning to a low carbon economy
is possible, developed countries must commit to reduce emissions
by 25 to 40% below 1990 by 2020.
Developed countries will now negotiate their
level of effort to reduce emissions both under the Kyoto Protocol,
for those ratified Parties, and under the UN Framework Convention
on Climate Change (UNFCCC) where the United States is a Party.
This leaves an open space for the next U.S. Administration to
engage constructively and hopefully ambitiously in the post-2012
negotiations. It also includes negotiations on mitigation for
developing countries to conclude in new and enhanced verifiable,
measurable and reportable commitments, very closely linked to
the provision of scaled up technology transfer and finance for
the transition to a low carbon economy. In addition, the Bali
conference made significant progress on putting deforestation
and forest degradation on the Bali Action Plan. However, the issue
remains a politically highly complex one and many challenges still
need to be overcome before any reduce emissions from deforestation
and degradation framework can be effectively implemented. Finally,
adaptation provisions took a small step forward in Bali, but much
more is needed.
In order to ensure that the principle of common
but differentiated responsibilities is fulfilled, any meaningful
post-2012 international climate regime will have to ensure that
different national conditions are reflected in a country's CO2
reduction commitments. As agreed under the UNFCCC framework, developed
countries will have to take the lead by continuing with absolute
mandatory caps on emissions. Based on a country's historical responsibility,
capability and potential to mitigate, developing countries should
take on different kinds of commitments reflecting their differentiated
commitments (eg sectoral commitments, policies and measures etc).
Developed countries must lead the process to a global low-carbon
future by providing clear leadership and allowing the low-carbon
technology development and deployment processes to become more
ambitious in developing countries. Here the EU should pursue these
objectives on both a bi-lateral and a multilateral level, bringing
new innovative financing ideas to the table internationally and
testing them in a bi-lateral framework, for example by working
with China on low-carbon economic zones.
The current revenue streams for financing adaptation
and technology transfer to developing countries are neither of
a sufficient scale, nor of an adequate form to meet the growing
challenge of tackling climate change. While a range of estimates
exist on the costs of adaptation and mitigation, it is essential
to ensure that international resources are additional to currently
committed ODA and that private sector finance is leveraged. A
carbon price alone will not ensure that innovation in every sector
occurs. Different technologies are at different stages on the
innovation chain and their R&D, deployment and diffusion needs
will therefore also vary. Only a balanced combination of market
push and market pull incentives for low-carbon trade and investments
can play a significant role in creating win-win options for achieving
mitigation targets and economic gains across the globe.
As such, a range of funding options exist which
could include auctioning revenue from the carbon market such as
is proposed by the European Commission in its updated Emissions
Trading System. The financing of mitigation and adaptation technologies
in developing countries must be in line with national sustainable
development goals of that particular country. Purely donor driven
approaches will not build confidence nor will they provide the
incentives needed to interest developing countries in agreeing
to a new commitment in an international treaty.
1. Question 1: Is the Kyoto Protocol still
a relevant and effective mechanism? How successful was the Bali
conference? Does the roadmap contain all that is needed to lead
to a post-Kyoto agreement that adequately addresses the climate
change challenge? Will the roadmap focus on implementation issues
or will it come to an agreement on a stabilisation level? How
do we ensure that no key parties are left out of the process?
1.1 The Bali outcome is step in the right
direction. Due to the very strong opposition by the Bush Administration
on a range of crucial issues, it was the most that could have
been achieved at Bali. The Bali Roadmap outlines the essential
elements that will have to be negotiated within the next two years
in order to achieve an ambitious post-2012 agreement. It does
not, however, provide sufficient guidance on what warming levels
must be avoided, and thus what exact emissions reductions are
required to meet such a target. These issues will lie at the heart
of the negotiation process leading up to Copenhagen in 2009.
1.2 The Kyoto Protocol is still very relevant
in this roadmap and effective on a series of levels. The core
of the Kyoto Protocol is its cap and trade approach, requiring
binding absolute caps on industrialized country emissions from
the period 2008 to 2012. Emissions trading and the other "flexibility
mechanisms" such as the Clean Development Mechanism (CDM)
were first initiated by Kyoto and now serve as the basis for the
carbon market. Secondly, negotiations have been underway since
late 2005 on the second commitment period of the Kyoto Protocol.
This was strengthened in Bali. The Bali decisions set a deadline
of 2009 to complete the negotiations and offered some guidance
on the level of effort for the next set of targets for Kyoto industrialized
countries. This includes the need to peak and reduce global emissions
in 10 to 15 years; the need to reduce global emissions well below
half of levels in 2000 by the middle of the century; and the recognition
that the lowest IPCC scenario would require Annex I Parties as
a group to reduce emissions in a range of 25 to 40% below 1990
by 2020. The noting of this single scenario should provide guidance
for the second commitment period targets for Kyoto Parties.
1.3 The process to agree targets for each
industrialized Kyoto country for the Protocol's second commitment
period is also now very clear, set out by the work plan of the
AWG in great detail. Through a series of submissions, workshops,
inputs from external experts, roundtables and extra negotiating
sessions, countries will negotiate a new set of targets for the
second commitment period to be delivered for adoption to the Copenhagen
COP in 2009.
1.4 As the United States is not a Party
to the Kyoto Protocol and therefore is not included in the Kyoto
target negotiations, a different space had to be found to negotiate
U.S. mitigation in the future. Indeed, a major challenge in Bali
arose when it became time to discuss what the non-Kyoto industrialized
countries would be negotiating for their mitigation for the next
two years. While that group includes Kazakhstan, Belarus and Lichtenstein,
the main interest is to ensure that the United States is negotiating
mitigation of its emissions. Countries were not prepared to launch
a new round of negotiations in Bali without a clear and ambitious
negotiating process for the USA itself.
1.5 The Bali Action Plan includes negotiations
on mitigation commitments for industrialized countries that are
measurable, reportable and verifiable and should be comparable
with other developed country negotiations, providing the link
to the Kyoto Protocol track of negotiations. The text also specifically
notes quantified emission limitation and reduction objectives,
the same type of commitments that the AWG is negotiating for other
developed countries.
1.5.1 The Bali Action Plan also includes
a negotiation over mitigation for developing countries. Developing
countries, along with the United States had been part of the Dialogue
on Long-term Cooperative Action on Climate Change under the UNFCCC,
but as this Dialogue comes to an end, and in light of growing
CO2 emissions from developing countries, it is clear that these
negotiations must be more serious and ambitious than before. At
Bali countries agreed to negotiate enhanced national mitigation
actions that are "measurable, reportable and verifiable."
The next two years will focus on negotiating new actions and approaches
for developing countries to curb their emissions, linked with
support in the fields of technology, financing and capacity building.
While formal conditionality is not the case, it is very clear
that the level of ambition of developing country mitigation will
go hand-in-hand with the level of support from industrialised
countries.
1.5.2 The Bali Action plan also includes
a separate, but linked, negotiation framework on deforestation
and forest degradation measures in developing countries. For the
first time, deforestation will get the attention it requires.
A separate subsidiary body decision outlines much of the work
plan on this issue, with a programme of work on methodological
issues that should identify the range of policy approaches and
positive incentives. There is also room for demonstration activities
and a focus on increasing resources. In fact, Norway made a major
announcement in Bali, committing $500 million/year over the next
five years to fund deforestation reduction efforts, independent
of any reduction commitments by North or South or any link to
the carbon market.
1.5.3 Technology development and transfer
will also play a large part in the negotiation process setting
standards on transferring the technologies that are needed for
both the mitigation and adaptation of climate change. The increased
realization of the need for a functioning set of measures to facilitate
technology transfer from developed to developing countries will
play a vital role in these negotiations. A much more robust set
of commitments and actions around technology transfer and assisting
developing countries to create favourable national conditions
must be put in place if global emissions are to peak and decline
in the next 10 to 15 years. Here the Experts Group on Technology
Transfer (EGTT) has a very comprehensive work programme including
assessing the gaps and barriers to technology transfer, developing
a set of performance indicators to monitor and evaluate the effectiveness
of the technology transfer framework and bringing forth a strategy
paper on how to move forward.
1.5.4 In the area of adaptation, the Kyoto
Protocol's Adaptation Fund was finally made operational so that
it can begin to distribute funds generated from the level on the
Clean Development Mechanism (CDM). Under the UNFCCC, the Bali
Action Plan decided that there should be enhanced action in the
areas of risk management and risk sharing, disaster reduction
strategies, and international cooperation to support the urgent
implementation of adaptation actions.
1.5.5 The final element of negotiation of
the Bali Action Plan is that of finance, "enhanced action
on provision of financial resources and investment to support
mitigation and adaptation actions". Tied closely with the
three other elements, the negotiation will focus on creating innovative
means of funding adaptation, positive incentives for action, provision
of new and additional resources and mobilization of public and
private sector funding. Investment and finance will require inputs
from a range of new actors to the UNFCCC process.
1.6 The negotiation process will be organized
in two different ad hoc working groups. The existing Ad Hoc Working
Group of Article 3.9 of the Kyoto Protocol will continue and conclude
its work in 2009. A second group, the Ad Hoc Group on Long-term
Cooperative Action under the UN Convention, will also conclude
its work in 2009. It shall meet as often as necessary, initially
four meetings in 2008 with its first meeting taking place in March/April
2008. Chairs for the two years have already been identified and
confirmed.
2. Question 2: What needs to be done between
now and Poznan? Emissions from international aviation and shipping
were not included in the Bali roadmap. Why did this happen and
what can be done to address these emissions?
2.1 Poznan serves as a verification point
between Bali and Copenhagen in December 2009. It will evaluate
the international progress made since Bali and outline those measures
still necessary to achieve a successful post-2012 agreement. It
will be an important conference, although it will serve more as
evaluation rather than one which sets out its own agenda. In particular,
Poznan will "take stock" to assess whether there are
enough meetings scheduled, what progress has been made and optimally
to engage a representative of the new US Administration on how
it will participate in the negotiations.
2.2 Aviation needs to be included in any
post-2012 climate deal. Although it is not specifically mentioned
in the Bali Action Plan, its inclusion will be part of the negotiations
due to both a review of the Kyoto Protocol and the inclusion of
internationally competitive sectors in the negotiations. Although
it is still very disputed on how this will be done, the European
Commission, for example, adopted a proposal for legislation to
include aviation in the EU Emissions Trading Scheme (ETS) in December
2006. The proposal provides for aviation to be brought into the
EU ETS in two steps. From the start of 2011, emissions from all
domestic and international flights between EU airports will be
covered. In January 2012, the scope will be expanded to cover
emissions from all international flights—from or to anywhere
in the world—that arrive at or depart from any EU airport.
The intention is for the EU ETS to serve as a model for other
countries considering similar national or regional schemes, and
to link these to the EU scheme over time. The EU ETS could thus
form the basis for wider international action to include CO2 reducing
measures on aviation.
EMISSION REDUCTION
FRAMEWORKS
3. Question 3: How can "common but differentiated
responsibilities" be decided in such a way that ensures the
engagement of all parties? How can equity concerns regarding the
allocation of mitigation targets and historical responsibility
for climate change emissions be reconciled?
3.1 The principle of "common but differentiated
responsibilities" is the core underlying principle to the
UNFCCC, particularly for developing countries. How do we forge
a common response to the threat of climate change that respects
the different starting points of varying countries? The current
framework includes only two annexes—one for developed countries
and one for developing with no long-term perspective of what the
overarching goal of the climate regime shall be. The post-2012
negotiations will rotate around these issues and should be based
upon the latest scientific data.
Any meaningful post-2012 international climate
regime will have to include countries at very different economic
stages. It is therefore vital to the success of any post-2012
agreement that these different conditions are reflected in their
national CO2 reduction commitments.
3.2 As agreed in the UNFCCC, developed countries
will have to take the lead by continuing with absolute mandatory
caps on emissions. In order to demonstrate leadership and have
a higher probability of staying below 2 degrees C, the level of ambition
for developed countries should match the IPCC's lowest scenario
equally to 25 to 40% emissions reductions below 1990 by 2020.
It is clear, however, that some developing countries must also
take on ambitious, specific mitigation commitments. CO2 emissions
from fuel combustion in non-Annex I countries have increased by
38.9% over the 1990-2000 period, resulting in a 40% of annual
global emissions in 2000 according to the World Resources Institute.
Some non-Annex I countries have seen a rapid economic development
in recent years.
3.3 While it is important for non-Annex
I countries to take on CO2 limitation and/or reduction commitments
it is also vital to the political success of any such agreement
that there is clear differentiation amongst non-Annex I countries
as their responsibility, capacity and potential to mitigate vary
greatly. The current grouping of developing countries does not
reflect the different national circumstances of that block (eg
from Saudi Arabia to Togo). The post-2012 regime should base the
level of effort for commitments on a set of core principles that
can be quantified so as to ensure a transparent process in setting
commitments. Three criteria are particularly mentioned in the
literature on this subject and include:
— Historical Responsibility which can
be analysed in various ways but the most cities approach is to
assess the cumulative per capita emissions of fossil CO2 in the
period 1990-2000 ("Brazilian proposal"). Other approaches
focus on longer time periods.
— Capability of a country to reduce
emissions. This might be quite different to its historical responsibility.
Here two criteria need to be taken into consideration: the Human
Development Index (HDI) and the GDP on the basis of purchasing
power parity. This would result in countries with higher levels
of national income and higher HDI ranking having to carry a higher
burden of mitigation.
— Potential which can be derived by
a country's emissions intensity and its emissions per capita.
Thus a high value for a country's CO2/GDP ratio would imply a
high potential to mitigate emissions. The more efficient an economy
already the less efficiency potential exists to mitigate further.
High per capita emissions, on the other hand, could be altered
by changes in lifestyles.
These criteria can then guide negotiations both
on the type and level of ambition of the commitments and the level
of financing a country will require to meet those commitments.
This mixture is highlighted below.
| High potential |
→ |
Reductions of domestic emissions |
| Medium potential | →
| Limitation of domestic emissions |
| Low potential commitments | →
| No quantitative but qualitative mitigation
|
| High capability |
→ |
Financial transfers for mitigation activities to "low/medium capability" countries |
| Medium capability | →
| Co-sharing: mitigation partly funded by "high capability" countries
|
| Low capability | →
| All mitigation activities funded by "high capability" countries
|
Responsibility to mitigate
| High responsibility |
→ |
Binding absolute reduction target |
| Medium responsibility | →
| Quantitative commitments only binding if all "high responsibility" countries take on commitments and conditional on transfer of adequate financial and technological resources
|
| Low responsibility | →
| Optional/voluntary mitigation commitments |
After evaluating the above criteria one arrives at a set
of country groups similar to the following:
— Poorest countries, including a large part of African
LDCs, will initially be excluded from any new commitments until
they have reached a certain level of economic and institutional
development in order for national CO2 emission reductions to make
economic sense.
— Advanced developing countries, for example large
parts of northern Africa, will begin to reduce their CO2 emissions
by measures of sustainable development.
— Newly industrialising countries, such as China,
South Korea, Mexico, Brazil and most OPEC states, will set no-lose
targets to limit their carbon emissions.
— Developed industrialised countries will take on
commitments of absolute emissions reducing measures according
to the Kyoto Protocol model. Here those countries with higher
CO2 emissions per capita will have to reduce more than others.
Table 1
COMMITMENTS ACCORDING TO COUNTRIES' PARTICIPATION FOR
A 450 PPMV STABILISATION GOAL[2]
A re-evaluation of the groups must take place every 5-10
years so as to remain effective and take account of the progress
made by individual countries. Step by step this will allow for
a greater number of countries to actively contribute to avoiding
dangerous climate change by taking on more ambitious CO2 emissions
reducing targets over time.
The final agreement may look slightly different than that
above. There may, for example, only be two or three groupings
within the developing country block. The point is to ensure that
there is an equitable process to determine the level of effort
and type of commitment developing countries must take.
4. Question 4: How might an agreement be reached with emerging
economies to ensure that their emissions trajectories move into
line with the need to reduce global emissions? How might developing
countries' need to expand their economies be reconciled with controls
on emissions?
4.1 The developed world holds great responsibility in
leading the way to a low-carbon future. Only if their economies
show clear and determined signs towards a low carbon economy can
developing countries be assured that their emerging economies
will not lose out by taking on ambitious actions or commitments
to curb their emissions. The Western economies of Europe, the
United States and Japan must therefore set clear emissions reduction
targets if emerging economies are to follow suit. There are different
ways to shift together to ensure a lower emissions trajectory:
4.1.1 Provide leadership: Ensure that Europe meets its
30% energy reduction target agreed by the Council in March 2007.
Not only will this serve as a process by which to show emerging
economies that industrialised countries are serious about climate
change, but it will also present less advanced economies with
the political know-how of how low-carbon economies can be achieved.
Germany, which sees itself as a frontrunner in setting ambitious
national CO2 reducing targets, is seeing clear signs that its
economic growth may be decoupling from its total greenhouse gas
emissions. As such, not only can Europe be a leader on showing
the rest of the world how to put adequate regulatory measures
into place and make them work, but its companies will also have
clear competitive advantage in developing low-carbon technologies.
4.1.2 Low-carbon technology deployment needs to become
more ambitious in developing countries. Strengthened intellectual
property protection is a necessary but insufficient condition
for speeding up technology development in developing countries.
Here it is vital to give every country a stake in the necessary
transition, especially large emerging economies like China and
India. There is a clear need for a pragmatic approach in addressing
intellectual property rights (IPR) issues. Here the rights governing
the technology itself are often less important, rather it is vital
that the receiving country has the absorptive capacity to use
them, to enable their widespread diffusion and to innovate independently
on the basis of the new knowledge. Negotiations in multilateral
institutions between host countries and rich investing countries
should include the issue of diffusion, and address the fact that
genuine transfer of technology involves providing the host country
with the capacity to develop and produce technology of its own,
rather than merely selling a piece of equipment or blueprint.
Despite risk of retaliation by trading partners, compulsory licensing
can be a useful tool when environmental protection or public health
is at stake. Governments can play a key role in stimulating the
innovation and diffusion of climate technologies. Strategies including
public provision of adequate infrastructure, subsidised research
and priority public procurement are major tools to encourage such
low-carbon technologies. A mix of push and pull mechanisms must
be used to facilitate the transition to a low-carbon future.
Europe should be pursuing these objectives on both a bi-lateral
and a multi-lateral level, bringing new and innovative financing
ideas to the table internationally and testing them out in bi-lateral
relations.
4.1.3 Establishing "Low-Carbon Economic Zones"
(LCEZs) between China and the EU could be a bold initiative for
European and Chinese policy-makers to consider. These LCEZs could
be the testing grounds for policies promoting the economic transformation
necessary for a low-carbon future. Their focus on attracting investment
in research and high-end manufacturing would be consistent with
the Chinese leadership's desire to shift away from simple processing
and assembly. The EU could focus its energy and climate cooperation
with China around these zones to demonstrate the real possibility
of large-scale transformations to other regions and countries,
from which the EU would greatly benefit. Such LCEZs could also
pioneer sectoral approaches to climate change since competitiveness
concerns about climate change policies have generated significant
interests in global sectoral standards agreements for energy intensive
sectors.
The creation of such LCEZs could also allow the EU and China
to set world-class standards for energy-efficient goods and services
as well as making coal more sustainable, through CCS financing
mechanisms for example. The coal issue is central to both regions
as future dependence on coal is expected to increase significantly
in China and the EU. Both could enhance existing cooperation to
deliver an agreed set of benchmarks and practices for improving
efficiency and reducing the sustainability impacts across the
coal fuel chain; including enhancing cooperation on development
of carbon capture and storage as a potential future energy option.
4.2 In short, there needs to be a clear move from a competition
to a cooperative framework if developing countries are to ensure
that their emissions trajectories move into line with the need
to reduce global emissions. With climate change posing new security
threats to all countries, finding technological solutions is a
shared dilemma and must be met by strengthened cooperation between
national governments and corporations.
ADAPTATION AND
TECHNOLOGY
5. Question 5: Is there adequate support for developing
countries to adapt to climate change? How will funding for climate
change mitigation or adaptation interact with existing aid budgets?
Will such funding contribute to wider sustainable development
goals?
5.1 Increased adaptation financing in developing countries
is needed in part to respond the incremental risks climate change
pose to the achievement of the Millenium Development Goals (MDGs).
The 2006 UK DfID White Paper recognised that climate change poses
the most serious long-term threat to development and the achievement
of the MDGs. Climate change is driving near term increases in
climate variability and extremes. This will increase humanitarian
costs from drought, floods and extreme storms. UN Security Council
debate on climate change in April 2007 showed strong developing
country views that climate impacts were increasing risks of crisis
and conflict. Ministry of Defense and Foreign Commonwealth Office
analysis supports this view.[3]
5.1.1 Climate change will impact the poorest people in
the poorest countries first; all poverty reduction efforts will
be affected. OECD (2005)[4]
estimates 15-60% of aid spending is vulnerable to climate change.
350 million people could be displaced by climate change by 2050.
By 2015, the share of DFID's budget devoted to humanitarian costs
could almost double, from 12% to 23%. Increased risks of instability
and conflict driven by climate change will add additional costs.
5.1.2 Financial costs to industrialized country governments
to "climate proof" current investments in both middle
and low income countries, assuming private sector leveraging occurs,
would be $1.3 to $7.7 billion per annum (Table 2). The World Bank
estimates costs of adaptation as 5-20% of development investment
sensitive to climate. For 2005 ODA, this amounts to US$4.5 billion
as the midrange value.
Table 2
COST OF CLIMATE PROOFING IN DEVELOPING COUNTRIES
| Cost Scenario $ billion per year) |
Total Developing Country Cost | Total LICs Share
| Total MICs Share |
| Low estimate | 1.3 | 0.2
| 1.1 |
| Middle estimate | 4.5 | 1.1
| 3.5 |
| High estimate | 7.7 | 1.9
| 5.8 |
| Adapted from WorldBank, 2006[5]
| | |
5.1.3 If one wishes to estimate the total costs, including
Foreign Direct Investment and Gross Domestic Investment then the
total numbers are much higher eg in the range of $4 to $37 billion
per year for developing country "climate proofing".
Cost estimates for OECD countries, according to Stern are in the
range of $15-150bn cost per year for adaptation in OECD countries.
This brings the total range to $19 to $187 billion per year for
the globe.
5.1.4 This, however, does not include the costs related
to disaster relief; climate-proofing people has been neglected
at the expense of climate-proofing investment. If climate change
is left unchecked, global humanitarian costs would skyrocket.
5.1.5 In addition to finding more innovative and additional
ways of financing adaptation as well as mitigation, adaptation
should also take complementary actions by:
— Building adaptive capacity by investing in basic
human development eg the MDGs.
— Capacity building—eg projecting impacts,
planning etc.
— Institutional strengthening to plan and manage
impacts.
— Technology transfer—eg building standards,
drought-resilient seeds, dyke building, early warning systems.
5.1.6 The current revenue streams for financing adaptation
are neither of a sufficient scale, nor of an adequate form to
meet the growing challenge of tackling climate change. The scaling-up
of existing mechanisms alone would not be sufficient to cover
for climate adaptation. Existing instruments include two UNFCCC
funds (ie Least Developed Countries Fund, LDCF and Special Climate
Change Fund, SCCF), which were set up under the auspices of GEF
(Global Environment Facility) to finance adaptation efforts in
developing countries. Another fund, Strategic Priority on Adaptation
(SAP), is financed separately by GEF's own resources. The delivery
of these funds has been very limited (Table 3). Total committed
finance for adaptation through multilateral funds was US $279
million. By mid-2007, actual multilateral financing delivered
under the broad umbrella of initiatives set up under the UNFCCC
had reached a total of US$26 million. This is equivalent to one
week's worth of spending on flood defence in the United Kingdom
(HDR, 2007).
Table 3
| Adaptation Funds | Operational since
| Total Pledged (US $ million) | Total received (US $ million) by 2007
| Total disbursed (US $ million) by 2007
|
| LDCF | 2001 | 156.7
| 52.1 | 9.8 |
| SCCF | 2005 | 67.3 (56.7[6])
| 53.3 | 1.4 |
| Adaptation | 200X | 5
| 5 | — |
| Fund | By 2012[7]
| 160-950 | — | —
|
| Sub-total | | 229
| 110.4 | 11.2
|
| SPA | 2004 | 50
| 50 | 14.8 |
| Total | | 279
| 160.4 | 26 |
| Source: Adapted from HDR 2007
| | |
In Bali, there was agreement regarding the governance of
the Adaptation Fund of UNFCCC. It will receive a constant flux
of revenues by a 2% levy on credits generated through CDM projects.
If implemented, it is estimated that the levy could generate a
total income in the range of US$160-950 million by 2012.
5.1.7 HDR Report 2007-08 drawing from various methodologies,
sets out its rough "lower bound ballpark" estimate of
overall additional adaptation investment required as US $86 billion
per year by 2015. Table 4 outlines different components of this
additional funding. Updating WorldBank's figures for 2005, their
cost estimate for climate proofing development investments and
infrastructure is suggested to be at least US$44 billion annually
by 2015 (This figure is based on the assumption that adaptation
financing requirements in developing countries will represent
around 0.1% of developed country GDP). Since most adaptation cost
estimates are solely focusing on the cost of climate-proofing,
they include other types of costs adaptation will entail. Adapting
poverty reduction programmes is suggested to require a commitment
of at least US$40 billion per year (This figure represents around
0.5% of GDP for low income and lower-middle income countries).
Finally, increase in climate-related disaster response of US$2
billion a year in bilateral and multilateral assistance by 2015
is estimated to prevent the diversion of development aid. The
existence of different estimates shows the wide range of methodologies,
which themselves reflect various uncertainties over calculating
the exact cost of climate risks.
Table 4
| | Estimated Cost
| |
| Estimated donor country cost | % of OECD GDP by 2015
| US $ billion by 2015 |
| Climate-proofing development investment
| 0.1 | 44 |
| Adapting poverty reduction to climate change
| 0.1 | 40 |
| Strengthening disaster response | (.)
| 2 |
| Total | 0.2 |
86 |
Source: Estimates based on GDP projections from World Bank
2007d quoted in HDR 2007
5.1.8 Institutional aspects of funding adaptation mechanisms
could include:[8]
— expanding ODA infrastructure to accommodate the
required adaptation—internalize adaptation in the existing
bilateral and multilateral ODA infrastructure;
— creating or extending a globally centralized fund—extend
the Protocol's Adaptation Fund;
— creating locally-focused funds such as Autonomous
Adaptation Funds—establish funds at national/sub-national
levels to respond to local adaptation needs; and
— an insurance mechanism for adaptation—range
of ideas here from compensation for the suffering from impacts
to innovative market-based insurance instruments.
5.2 It is important to ensure in the medium term that
international resources for climate change mitigation and adaptation
are additional to currently committed ODA. Financing adaptation
by multilateral development assistance has been so far characterised
by underfinancing, fragmentation and weak leadership as also shown
above (HDR, 2007). HDR (2007) also notes that in addition to this,
"international cooperation on adaptation has not been developed
as part of the wider international aid partnership on poverty
reduction. The end result is that multilateral financing mechanisms
are delivering small flows of finance with high transaction costs,
yielding very limited results".
5.2.1 In the area of mitigation, it is very clear that
existing ODA will not be enough to address the huge challenge
climate change will impose. The role of the carbon market, additional
ODA funding and other possible means and sources need to be further
explored.
The underlying documents to Stern try to calculate the scale
of additional costs that will need to be made in developing countries
by 2015 in order to stabilize concentrations (Table 5).
Table 5[9]
| Costs in non OECD
countries, per year in 2015
| Costs in non OECD countries,
per year in 2025
|
| Mitigation | $69 billion |
$294 billion |
In order to cover these additional costs, a range of approaches
exist starting with:
— Developing countries themselves fund part of the
additional investment costs. How much will depend on the level
of development of each country and their technology needs. See
case studies below.
— Deeper cuts in developed countries and a transformed
CDM to sectoral and policy approaches in developing countries
thus allowing more carbon finance to flow south. The rapid development
of an international carbon price, in particular, would mean that
much of this investment could be made "off-balance sheet"
from the point of view of the public sector.
5.2.2 Financing options can include expanding the carbon
market by deeper industrialized country targets, and transformed
CDM. Stern documents include the following calculations in regard
to the potential role of the carbon market in assisting in closing
the gap of additional cost (Table 6):
Table 6[10]
| Costs in non OECD countries, per year in 2015
| Costs in non OECD countries, per year in 2025
|
| Funding through carbon market | $24 billion (of the $69 billion total)
| $173 billion (of the $294 billion total) |
These results are generally consistent with those done by
Baker & Mackenzie for Vattenfall (2007), which find that there
are a range of mitigation options for a marginal abatement cost
of 40 euros/ton in 2030, again consistent with the overall Stern
economic estimates. The striking thing to note is that Stern focused
on 550ppmve and Vattenfall on 450ppmve, thus showing the large
ranges in the estimates.
5.2.3 It is therefore clear that a carbon price alone
will not ensure that innovation in every sector occurs, or that
the essential research and development occurs. Indeed, there is
additional financing needed for emerging technologies along the
following lines:
Table 7[11]
| | Costs in non OECD countries, per year in 2015
| Costs in non OECD countries, per year in 2025
|
| Emerging technologies where further funding needed
| $45 billion (of the $69 billion total) |
$121 billion (of the $294 billion total) |
Financing needs to be tailored according to the country and
its specific needs. As far as where the funding is most needed,
there are a range of graphs which show the different costs for
the different technologies in various years. Financing mechanisms
must be tailored to recipient developing countries, since they
vary widely. For example, in Middle Income Countries (MIC), there
should be clear funding for the transition to a low-carbon economy,
while in Least Income Countries (LIC) the focus should be on adaptation
and access to climate change proofed energy.
5.2.4 Additional finance can be generated through a mixture
of regulatory and market mechanisms:
— on the international level, part of the national
level commitments, the so-called assigned amount, would not be
allocated for free to countries but rather taken out and put in
a separate global fund to be monetized and allocated to technology
development (and adaptation); or
— on the national level, permits would be auctioned
and part of that revenue would be placed in a national fund coordinated
with other national funds or an international fund for technology
development and adaptation.
This could be a significant funding source. For example, 150
$bn/year could be generated if 40% of the emissions permits from
developed countries were auctioned at a price of 30 to 40$/ton.
From 2012-20 auctioning developed country carbon permits could
provide sufficient funds to deliver adaptation and MIC mitigation.
— Placing a levy on the other financial mechanisms
of the Kyoto Protocol; currently there is a 2% levy on the CDM
revenues to finance Adaptation Fund. This could be spread to emissions
trading and joint implementation in the future. The total amount
available depends on the size of the market.
— Doubling public support for RD&D to around
$50bn/yr to reduce costs and accelerate deployment in both developed
and developing countries.
— World Bank and Regional Development Banks' efforts
to create a global Investment Framework for scaling up public
and private investment:
— potential to overcome obstacles to investment
in developing countries; and
— facilitate the transfer of finance and technology;
and allow financing for different sources to be combined effectively,
to catalyse the private sector investment needed to fund low carbon
technology, including energy efficiency. Policy mechanisms that
can assist in driving down costs and driving private sector investment
to stimulate technology development and diffusion will be detailed
further in Section 6.
5.3 The approaches taken in financing mitigation and
adaptation in developing countries must be in line with national
sustainable development goals of that country. Purely donor driven
approaches will not build confidence nor will it provide the incentives
needed to interest developing countries in agreeing to a new commitment
in an international treaty.
5.3.1 Avoided climate change is a global public good
that has strong poverty reduction benefits in developing countries.
As mentioned earlier, lack of adaptation will undermine all development
efforts, particularly in climate sensitive sectors (ie agriculture,
forestry) which the poorest in the developing countries are most
dependent on for their livelihoods, while lack of mitigation efforts
would lock advanced developing countries in carbon intensive economies.
5.3.2 Adaptation and mitigation needs and opportunities
differ according to the country. In MICs, adaptation funding would
support the transition to a low-carbon economy while achieving
MDGs. On the other hand, in LICs, reducing the vulnerability of
the agriculture to climatic extremes would support food security
of the poor. In addition to that, it would enable them to access
energy through climate change ready energy structure.
5.3.3 A comprehensive approach to climate change adaptation
(including enhanced humanitarian and disaster relief), including
additional investment and improved governance/conflict prevention
needs to be developed. Adaptation discussions have mainly focused
on technical and investment measures, linked to international
funds. This assumes governments will act to reduce climate impacts
on their citizens. But in states with low governance records,
climate change will magnify social stresses increasing the risk
of conflict and instability. In many areas in Africa and Asia
the only form of adaptation will be migration, with 200-400 million
people at risk by 2050. Managing the stresses of migration between
and within states will require strengthened humanitarian and political
action.
6. Question 6: Is there effective international coordination
on technology R&D? How might technology transfer to developed
countries be improved? How does technology transfer interact with
international trade rules? How effectively do Government technology
programmes, such as the Energy Technologies Institute, lead to
technology development and transfer to developing countries? How
effective are UK Government measures to assist developing countries
to reduce emissions?
6.1 There has been only slow progress on developing the
practical and effective innovation incentives needed to drive
a global transition to low-carbon economy. There are considerable
economic, political, regulatory barriers to overcome.
6.2 As noted above in question 5, large ranges of marginal
abatement cost estimates, suggest that a carbon price alone will
not ensure that innovation in every sector occurs, nor that the
essential research and development occurs.
6.2.1 Different technologies sit at different stages
on the innovation chain; therefore their R&D, deployment and
diffusion needs will also vary. For example, one can see below
that perhaps onshore wind could be funded through carbon market
expansion but solar thermal would need additional funding. This
will vary, however, from country to country.
Figure 1
INCREMENTAL CoSTS OF LOW CARBON OPTIONS AS % COSTS OF
FOSSIL FUELS
6.3 In addition to technology push through increased
resources for R&D, "market pull" with regulatory
reforms is equally important for low-carbon technology deployment
and diffusion. Policy mechanisms that can assist in driving down
costs and driving private sector investment include:
— A Multi-lateral Technology Acquisition Fund to
buy-out intellectual property rights with public funds and distribute
them to developing countries.
— Energy Efficiency or Carbon Intensity Related
Technology Agreements.
— Benchmarking/standard setting for technologies
to drive private sector investment in more efficient and/or lower
carbon intensive products such as vehicles, household appliances
etc. so leading to phasing out of most carbon intensive products.
— Sectoral agreements where sectors agree to certain
carbon-intensity technology standards—could be a G8+5/G20
agreement on key sectors.
— Technology Related Targets—Specific targets
whether national, regional or global for key low carbon technologies,
such as renewable energy; number of fossil fuel plants fitted
with carbon capture and storage; percentage of biofuels within
the transportation sector etc would be combined with Technology
Cooperation Agreements with developing countries and financing
for incremental costs provided.
— Removing trade and investment barriers to climate
change technology transfer, eg common market in low carbon technologies
between the EU and China.
— Setting technology standards: Innovation and diffusion
in buildings and transport will be driven by technical standards
not price. Trade and investment driven deals with dynamic developing
countries can lower costs and drive diffusion. Therefore, there
is a need to link tariff barrier reduction, investment policy,
mutual standards recognition and joint efficiency standard policies.
6.4 The financial resources generated for technology
innovation and diffusion could be used to set up a common pool
of IPRs (depending on the technology). But most importantly they
should encourage and make substantial steps in making the underlying
knowledge available through joint R&D and demonstration collaborations.
The leading companies in global power plant industry have provided
licenses to developing country firms for the manufacture of equipment
such as gas turbines. However, these licenses exclude the manufacture
of the most "high tech" components such as the first
row of turbine blades which incorporate advanced materials, cooling
technologies and manufacturing techniques.[12]
Although having patents to manufacture high tech is building up
the capacity and skills-base, access to the underlying knowledge
is a key component for innovation in those countries through knowledge
transfer. Capacity building is also another important component
of technology transfer.
6.5 Win-win options of achieving mitigation targets and
economic gains are possible through creating new market incentives
for low-carbon trade and investment. In the case of EU and China,
a recent Chatham House and E3G study[13]
suggests that "the sheer size of the two markets means that
an EU-China trade agenda will influence the global marketplace
and further stimulate trading opportunities, both with each other
and elsewhere. This could also help offset competitiveness concerns
of EU and Chinese entrepreneurs about moving quickly towards low-carbon
alternatives". To achieve this, barriers to trade and investment
in low-carbon trade in goods and services would need to be removed.
6.6 The newly established Energy Technologies Institute
(ETI) (operational from 2008),outlines its objectives as follows:
— increasing the level of funding devoted to R&D
to meet the UK's energy policy goals;
— delivering R&D that facilitates the rapid
commercial deployment of cost effective, low carbon energy technologies;
— providing better strategic focus for commercially
applicable energy related R&D projects;
— connecting and managing networks of the best scientists
and engineers to deliver focused energy R&D projects to accelerated
eventual deployment; and
— building R&D capacity in the UK in the relevant
technical disciplines to deliver the UK's energy policy goals.
None of its objectives specifically address technology transfer
from the UK to developing countries. On the other hand, it does
not have a UK remit, ie investments do not have to be made in
the UK or into UK companies.
Given ETI's early development stage it is difficult to argue
whether it can play a significant role in technology development
and transfer. We believe technology transfer to developing countries
has a significant role to play in mitigation and adaptation; therefore
needs to be a part of the UK government technology programme.
7. Question 8: How might mechanisms to tackle emissions
from deforestation be developed? How can we ensure that such mechanisms
contribute to wider sustainable development aims? Will such mechanisms
deal with the need to ensure the protection of indigenous people,
land use rights and governance? How might forest degradation be
dealt with? Are additional mechanisms required to enable the creation
of carbon sinks?
7.1 Deforestation emissions are estimated to contribute
20% of all anthropogenic CO2 emissions.[14]
This makes deforestation the second largest cause of greenhouse
gas emissions after fossil fuel burning. Therefore, we think the
suggested Reduced Emissions from Deforestation and Degradation
(REDD) mechanism can play an important role in addressing GHG
mitigation.
7.2 At the last COP meeting in Bali, significant progress
was made by putting deforestation and forest degradation on the
Bali Action Plan, and a work programme for further methodological
work was adopted. The so-called Bali Roadmap also included possible
financial support to tackle deforestation and forest degradation,
which contributed to climate change. However, given the complexity
of forest governance issues and, the uncertainties about the post-2012
market and political architecture, there are considerable challenges
in the design and implementation of any REDD framework.
7.3 The basic principle of a REDD mechanism is that following
a baseline for emissions from deforestation and degradation for
a country is agreed the emissions reductions below the agreed
baseline will be rewarded ex-post. Options of financing this by
a dedicated fund or by selling emission reduction in the carbon
market, or some combination of the two are still being discussed.
7.4 Including credits accrued from REDD in the international
trading system on a fully fungible basis has large risks. It has
the potential of flooding the global carbon market with cheap
compliance credits. This would have serious negative implications
on the price of carbon, and in turn would undermine urgent need
for transition to a low-carbon economy. A potential solution can
be setting up a hybrid market-linked fund proposed by Greenpeace
International. This so-called "Tropical Deforestation Emission
Reduction Mechanism (TDERM)" could provide funding for forest
protection that is driven by a mandatory minimum contribution
from Annex I Parties to meet a certain percentage of their emission
reduction targets. Compliance with national emissions reducing
targets could be secured by a "Tropical Deforestation Emissions
Reduction Unit", and its price could be determined by auctioning.
These proceeds would go into the TDERM to fund and reward reductions
of emissions. In addition to a mandatory minimum contribution,
the supply of these credit units would also be limited to an agreed
level, while it would be necessary to ensure sufficient funds.
7.5 It is not yet clear whether REDD will have any obligations
towards any development outcomes to be met, and how these will
be integrated into a REDD design. Experience from community forestry
projects emphasised the importance to make explicit any development
objectives in the design phase, if any development outcomes will
be achieved.[15] We agree
that "REDD activities should be coupled with long-term development
co-benefits to ensure permanence of avoided emissions".[16]
7.6 There are significant governance issues which will
need to be addressed if emission reductions from deforestation
and forest degradation will be achieved and be permanent. Tackling
these will require clarity over ownership/tenure of land/trees
and carbon benefits, distribution of transaction costs and benefits,
clarity over the distribution of benefits, a better understanding
of power relations and decision-making processes between different
actors (ie central and local governments, local communities, NGOs,
logging companies, unions etc), improved accountability and transparency,
and increased capacity of institutions in managing the use and
benefits accrued.
7.7 Causes of degradation are multi-faceted, and vary
greatly between different countries and regions. There is no one-fits-all
options for the design of REDD to tackle deforestation and degradation.
They must be developed in the context of wider sectoral reform
and institutional strengthening at the national and local levels[17]
to avoid creating perverse incentives for changing land use.
8. Question 10: What action is the Government taking
to prepare for and accelerate the linking of the EU Emissions
Trading Scheme with other trading schemes? Is a new institutional
or regulatory framework required to enable their development and
coordination? How might schemes be linked where they have different
emission caps? Might the EU-ETS be undermined by linking with
other schemes?
8.1 UK Government has recently signed (28 January 2008)
International Carbon Action Partnership (ICAP), a supportive initiative
to UNFCCC framework to develop similar design principles for their
national/regional trading schemes and markets in preparation for
a global carbon market integration in post-2012.
8.2 Given the early stage development in GHG emissions
trading markets, it is important that their architecture remain
flexible and adaptive to learning from experiences. Some amount
of innovation should be encouraged regarding their design while
bearing in mind that clear rules and some degree of harmonization
will be needed for a well-functioning and effective global carbon
market.[18]
8.3 There are various non-exclusive arguments for linking
GHG emissions markets in different countries in a post-2012 global
carbon market. We believe that the balance of different objectives
should be set clearly. In principle, trading systems covering
as many sources and gases as possible would be more likely to
achieve most economic efficiency, and would provide cheaper abatement
options in developing countries. However, linking GHG emissions
markets also holds the potential as a new diplomatic tool to bring
more stakeholders in to reach a Global Deal, and encouraging domestic
change to a low-carbon economy in both developed and developing
countries. The end goal must be a global agreement with emissions
trading at its heart which then will likely replace any linking
agreements undertaken up to that point.
8.4 We believe that a set of criteria should be satisfied
to ensure quality of the various schemes, which would be linked
to EU-ETS. This would make sure that the EU- ETS is not undermined.
These should include absolute mandatory caps, strong measuring
and monitoring, and perhaps even auctioning requirements. A recent
OECD study (2006) points out the following design features, which
will require special attention if to encourage linking different
GHG emissions trading markets and schemes:
— "How targets are expressed (eg fixed or indexed).
For example, care would be needed to ensure that linking does
not change the environmental integrity of either system by allowing
more emissions than originally intended.
— Price caps. Linking a scheme with a price cap
to one without a cap could reduce the incentives to deploy innovative
technologies in the system not subject to a cap if the price is
set too low.
— Non-compliance provisions. These can affect the
environmental effectiveness of a particular scheme by encouraging
(or not) its targets to be met. Stakeholders in a scheme with
rigorous non-compliance provisions may be reluctant to link to
a scheme with less stringent provisions, and thus a lower perceived
environmental effectiveness.
— Banking/borrowing provisions, commitment period
lengths and starting points. Care would be needed if linking an
ETS that allows borrowing with one that does not. Different commitment
periods, lengths and banking provisions might also require more
sophisticated emissions accounting processes.
— Eligibility of offsets. Credits from CDM projects
are accepted in several ETS. Other types of eligible offsets vary
widely in terms of project types/host countries.
— Permit allocation methods in different countries.
These could have competitive implications thereby affecting the
political acceptability of linking different national systems".
8 February 2008
1
Winkler et al, "Future mitigation commitments: differentiating
among non-Annex I countries", Climate Policy 5 (2006);
p 478. Back
2
Hohne, Niclas. Phylipsen, Detal. Ecofys. "Options for
the second commitment period of the Kyoto Protocol"; p 33. Back
3
MOD/DCDC, Global Strategic Trends 2006; FCO Africa Research Analysts,
2007. Back
4
OECD, 2005 Bridge Over Troubled Waters: Linking Climate Change
and Development. Back
5
WorldBank, 2006 Back
6
Amount earmarked for adaptation only. Back
7
This is an estimate therefore it is not included in the calculation;
the total amount will depend on trade volumes and prices. Back
8
ECP Report, November 2006. Back
9
D Anderson, "Costs and Finance of Abating Carbon Emissions
in the Energy Sector," Imperial College, 2006. Back
10
Ibid. Back
11
Ibid. Back
12
Watson et al, 2007 Technology and carbon mitigation in developing
countries: Are cleaner coal technologies a viable option? Background
Paper for Human Development Report 2007. Back
13
Bernice, Froggatt et al, 2007 Changing Climates: Interdependencies
on Energy and Climate Security for China and Europe. Chatham House. Back
14
IPCC, 2007; Houghton, 2005; Stern Review, 2006. Back
15
Schreckenberg et al, 2007 A way out of poverty? A review of the
impacts of PFM on livelihoods. Keynote paper presented under Theme
4 "PFM and Livelihoods: Role of PFM in Poverty Reduction"
1st National Participatory Forest Management Conference, 6-8 June
2007.Kenya Forestry Research Institute (KEFRI) HQ, Muguga, Kenya.
ODI; Luttrell et al 2007 The implications
of carbon financing for pro-poor community forestry. ODI. Back
16
Peskett and Harkin, 2007 Risk and responsibility in Reduced Emissions
from Deforestation and Degradation. ODI. Back
17
Ibid. Back
18
Ellis and Tirpak, 2006 Linking GHG Emission Trading Schemes and
Markets. OECD and IEA. Back
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