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Business & Climate Change Series, UN Climate Talks: Saving the Planet or Expensive Red Herring? by Andrew Pragg OECD (21.01.13)
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Business & Climate Change Series, UN Climate Talks: Saving the Planet or Expensive Red Herring? by Andrew Pragg OECD (21.01.13)

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Andrew Prag from Organisation of Economic Co-operation and Development Environment Directorate gives this presentation. At the OECD Environment Directorate, Andrews current work focuses on providing ...

Andrew Prag from Organisation of Economic Co-operation and Development Environment Directorate gives this presentation. At the OECD Environment Directorate, Andrews current work focuses on providing OECD countries with in-depth analysis and advice on the UN climate negotiations process. Prior to OECD, he worked for 4 years as a policy specialist for Camco, a leading low-carbon project developer and consultancy, where he was also a founding director of the Project Developer Forum, a carbon market trade association.

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Business & Climate Change Series, UN Climate Talks: Saving the Planet or Expensive Red Herring? by Andrew Pragg OECD (21.01.13) Business & Climate Change Series, UN Climate Talks: Saving the Planet or Expensive Red Herring? by Andrew Pragg OECD (21.01.13) Presentation Transcript

  • UN climate talks: saving the planet orexpensive red herring? Andrew Prag (OECD) Edinburgh University Business School 21 January 2013 Climate Change Expert Group
  • ...or perhaps the story about hounds was itself the first red herring?2 Climate Change Expert Group
  • OECD/IEA Climate Change Expert Group (CCXG)  CCXG (formerly AIXG) has provided technical analysis on UN climate change negotiations since 1994  Not a Party to the UNFCCC, but works closely with OECD and non-OECD countries  Current work topics include:  Emissions accounting and baseline setting  Design and governance of market mechanisms  Defining and tracking climate finance All papers can be freely downloaded from: www.oecd.org/env/cc/ccxg NB: this presentation is a personal viewpoint!3 Climate Change Expert Group
  • Overview  The emissions problem and how to solve it  The UN climate talks: past and present  Implications for business: market mechanisms under the UNFCCC  Looking forward: what role for the UNFCCC?4 Climate Change Expert Group
  • The emissions problem GtCO2e Outlook Baseline 450 ppm Core 130 120 450 ppm Delayed Action 450 ppm Accelerated Action 110 100 90 80 70 60 50 40 30 20 10 0 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Source: OECD (2012), OECD Environmental Outlook to 2050, Baseline projection using ENV-Linkages model5 Climate Change Expert Group
  • Addressing the problem quicklyDelaying action would increase the global cost of mitigation by nearly 50% by 2050, and could make it unaffordable Real income in 2050 (% deviation from baseline) 450 ppm Core 450 ppm delayed action 0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10% World6 Climate Change Expert Group
  • Breaking down the problem 8000 100% 7000 Cumulative % of world emissions 90% 80% 80% 6000 70% 5000 Index / percentage 60% Vulnerability ratings R² = 0.4Mt CO2 4000 50% 40% 3000 30% 2000 20% 1000 10% 0 0% 1 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151 161 171 181 20 countries Countries (decreasing emissions) CO2 Mt CO2 %cum Vulnerability Index Vulnerability trend Data sources: IEA CO2 emissions from fuel combustion, GAIN vulnerability index index.gain.org 7 Climate Change Expert Group Note that if all GHG emissions are included, overall picture is similar but country order changers
  • 8000 Zooming in on the top twenty 1 0.9 7000 0.8 6000 0.7 5000 0.6 MT CO2 4000 0.5 0.4 3000 0.3 2000 0.2 1000 0.1 0 0 CO2 Mt Vulnerability Index Data sources: IEA CO2 emissions from fuel combustion, GAIN vulnerability index index.gain.org8 Climate Change Expert Group Note that if all GHG emissions are included, overall picture is similar but country order changers
  • What actually needs to be done?  Massive reallocation of capital from high-emitting to low-emitting technology and infrastructure, particularly where emissions are growing fastest  Find workable and permanent solutions to slow and reverse tropical deforestation  Pre-empt and adapt to the effects of climate change, including protecting the most vulnerable  Can this be achieved through domestic legislation and bilateral agreements alone?9 Climate Change Expert Group
  • Overview  The problem and how to solve it  The UN climate talks: past and present  Implications for business: market mechanisms under the UNFCCC  Looking forward: what role for the UNFCCC?10 Climate Change Expert Group
  • 1972-’90 1992 1994 1997 2001 2005 2007 2009 2011 2012 2015 Stockholm Conference, Brundtland Report 2008-12 KP first period UNFCCC signed The long and arduous journey attempting to tackle global climate change through multilateral negotiations New Agreement applicable to all11 Climate Change Expert Group
  • The Convention: Amen  As the founding document of the negotiations, its words are seen by some as unimpeachable  CBDR-RC: “common but differentiated responsibilities and respective capabilities” and “based on equity”  Long before Kyoto, the Convention divided the world along two lines: “committed” vs “non- committed” and “donors” vs “receivers”  Negotiated from 1990, signed in 1992: the world has since changed12 Climate Change Expert Group
  • 1972-’90 1992 1994 1997 2001 2005 2007 2009 2011 2012 2015 Stockholm Conference, Brundtland Report 2008-12 KP first period UNFCCC signed UNFCCC entry into force Kyoto Protocol signed New Agreement applicable to all13 Climate Change Expert Group
  • Kyoto Protocol  The breakthrough – but “CBDR” formalised by developed country photo removed commitments  “Legally-binding” but sanctions based on continuing participation  The US signed but ratification was always unlikely  The US pushed hard for a market approach – thereby inadvertently defining EU climate policy for 25 years or more  Entry into force depended on Russia’s involvement14 Climate Change Expert Group
  • 1972-’90 1992 1994 1997 2001 2005 2007 2009 2011 2012 2015 Stockholm Conference, Brundtland Report 2008-12 KP first period UNFCCC signed UNFCCC entry into force Kyoto Protocol signed Marrakech Accords Kyoto entry into force Bali Action Plan agreed New Agreement applicable to all15 Climate Change Expert Group
  • The Bali Roadmap  2007: talks rescued from verge of collapse to set a road map to a new agreement by 2009  The Bali Action Plan work areas included:  Unconditional targets for developed countries  “Nationally-appropriate mitigation actions” for developing countries, conditional on support  New market-based approaches photo removed  Increased emphasis on adaptation  Technology transfer, costs of response measures...16 Climate Change Expert Group
  • 1972-’90 1992 1994 1997 2001 2005 2007 2009 2011 2012 2015 Stockholm Conference, Brundtland Report 2008-12 KP first period UNFCCC signed UNFCCC entry into force Kyoto Protocol signed Marrakech Accords Kyoto entry into force Bali Action Plan agreed Copenhagen Accord New Agreement applicable to all17 Climate Change Expert Group
  • Copenhagen Accord and disaccord  Hype, hype and more HYPE!  Negotiations were far from ready, so Heads-of- State initiated a big-emitters-club discussion  The “Accord” was never adopted  Biggest legacy was perhaps finance: “mobilizing jointly USD photo removed USD 100 billion a year by 2020 to address the needs of developing countries ”18 Climate Change Expert Group
  • 1972-’90 1992 1994 1997 2001 2005 2007 2009 2011 2012 2015 Stockholm Conference, Brundtland Report 2008-12 KP first period UNFCCC signed UNFCCC entry into force Kyoto Protocol signed Marrakech Accords Kyoto entry into force Bali Action Plan agreed Copenhagen Accord Durban Platform New Agreement applicable to all19 Climate Change Expert Group
  • Cancun and Durban: reconciliation and slow progress  Cancun overcame the near-collapse of Copenhagen and formalised most of the “accord”  Advent of a more rigorous reporting framework for all countries  Durban went to the wire, but finally produced text that “a protocol, another legal instrument or an agreed outcome with legal force” is to be agreed by 2015 and come into force “by 2020”20 Climate Change Expert Group
  • 1972-’90 1992 1994 1997 2001 2005 2007 2009 2011 2012 2015 Stockholm Conference, Brundtland Report 2008-12 KP first period UNFCCC signed UNFCCC entry into force Kyoto Protocol signed Marrakech Accords Kyoto entry into force Bali Action Plan agreed Copenhagen Accord Durban Platform Doha Gateway,KP 2nd period New Agreement applicable to all21 Climate Change Expert Group
  • What did Doha achieve?22 Climate Change Expert Group
  • The “Doha Gateway”  Did what it had to  The Kyoto Protocol lives on: but limps towards retirement  Negotiations are now focused on a single track: the Durban Platform  The concept of compensation for “Loss and Damage” leapt to the forefront of negotiations23 Climate Change Expert Group
  • Another event in 2012: The Rio+20 conference24 Climate Change Expert Group
  • The path to 2015 and beyond  Build up theoretically different to that for Copenhagen – Parties have agreed on an instrument “applicable to all”  This is not a “lost decade” – domestic policy action is accelerating in most countries (albeit too slowly)  The Kyoto national emissions trading framework is unlikely to continue  Elements of Kyoto accounting framework can help countries to mutually understand actions – what do the numbers really mean?25 Climate Change Expert Group
  • Overview  The problem and how to solve it  The UN climate talks: past and present  Implications for business: market mechanisms under the UNFCCC  Looking forward: what role for the UNFCCC?26 Climate Change Expert Group
  • Market mechanisms under UNFCCC  The Kyoto Protocol is itself one big trading system, with governments as capped entities (“International Emissions Trading”)  Project-based mechanisms (CDM and JI) were a surprising addition to the Kyoto Agreement and intended as offsets for governments  EU “linking” EU ETS with CDM/JI, allowing capped companies to use offsets for their obligations, kick-started the project development industry in 2003  Most “action” on carbon markets is now focused on domestically-governed mechanisms27 Climate Change Expert Group
  • Current landscape of market mechanisms EU Switzerland Australia Japan New Zealand Tokyo offsets CFI Canada US JVETS Quebec Tokyo Alberta EU ETS ETS Alberta RGGI offsets WCI RGGI offsets BOCM/JCM California Norway CAR JI CDM Korea Voluntary VCS buyers UNFCCC new market- Not exhaustive and approximately to scale ETS pilots based (where data are available) mechanism = Trading system China UNFCCC = Crediting mechanism “framework Rio de Janeiro for various = Scope of mitigation target/goal Brazil approaches” = Link between mechanisms28 Climate Change Expert Group
  • General state of carbon markets in 2012 Since 2009, the market has suffered more from weak demand than from policy uncertainty The KP was in theory oversupplied from the outset with “hot air”, which the market ignored Difficulty to curb supply in the EU ETS is the main woe New domestic markets could boost overall demand through either indirect linking (recognising the same offsets) or direct linking (such as EU-Australia) But where might UNFCCC-governed market-mechanisms fit in here?29 Climate Change Expert Group
  • Negotiations on new market mechanisms  Since 2005 Parties have been considering new market mechanisms to build on CDM and JI  At Durban in 2011 negotiations split into two tracks and will continue into two work programmes in 2013 UNFCCC UNFCCC new market- “framework based for various mechanism approaches”  What is really the difference between the tracks?  What can a new mechanism do that a reformed CDM cannot?  How can domestic trading systems feature?30 Climate Change Expert Group
  • The “framework for various approaches” and the “new market-based mechanism” NMM FVA SPOT THE DIFFERENCE!31 Climate Change Expert Group
  • The framework for various approaches  Took shape in Durban, driven by countries looking for alternative to UNFCCC centrally-governed mechanism  Widely seen as a means to make domestically-created carbon units valid for meeting international targets under UNFCCC, but still lacks form  Doha decisions:  Purposes and institutional set-up to be elaborated  Developed under guidance and authority of the COP  “Criteria and procedures” to ensure environmental integrity  Common standards? UN approval process? Watch this space...32 Climate Change Expert Group
  • The new market mechanism  Largely an EU initiative, building on “sectoral crediting” and “sectoral trading” ideas on the table since 2005  Operation under guidance and authority of the COP  Doha decisions for 2013 work programme:  Modalities and procedures to be developed  An extended laundry list of requirements, building on previous years  “Sectoral and/or project-specific basis”  Criteria for establishment of ambitious baselines  Overcoming net global decrease challenge as well as sector-wide application33 Climate Change Expert Group
  • Where do new UNFCCC mechanisms fit? EU Switzerland Australia Japan New Zealand Tokyo offsets CFI Canada US JVETS Quebec Tokyo Alberta EU ETS ETS Alberta RGGI offsets WCI RGGI offsets BOCM/JCM California Norway CAR JI CDM Korea Voluntary VCS buyers UNFCCC new market- Not exhaustive and approximately to scale ETS pilots based (where data are available) mechanism = Trading system China UNFCCC = Crediting mechanism “framework Rio de Janeiro = Scope of mitigation target/goal for various Brazil approaches” = Link between mechanisms34 Climate Change Expert Group
  • Looking at it the other way around  What role might UNFCCC process play to facilitate linking of domestically-governed market mechanisms?  Until now, international unit transfers have been made via the KP accounting system but this will not always be the case in future.  How can the international community have confidence in the quality of internationally-traded domestic GHG units that might be counted towards pledges and targets?  Accounting and tracking framework  International design standards even if mechanism governance is devolved35 Climate Change Expert Group
  • Towards inter-linked carbon markets Fungibility through direct linking or recognition by UNFCCC process Regulators have mutual confidence in environmental integrity and governance Common standards in mechanism design even if governance devolved What role for standards in And for which design UNFCCC process? elements?36 Climate Change Expert Group
  • How to approach standards through “framework for various approaches”?  UNFCCC decisions to develop standards ◊ Could be broader facilitative guidance or more detailed prescriptive standards  UNFCCC recognition of other standards ◊ Recognising ISO or other standards if adequately verified  UNFCCC agrees only on transparency ◊ National regulators decide on standards and which units to recognise37 Climate Change Expert Group
  • Where next for UNFCCC mechanisms?  The UN discussions are happening against an evolving landscape of domestic mechanisms  In the near future, there is insufficient demand to support a new mechanism generating large volumes of credits  The “framework for various approaches” could serve to develop standards to facilitate the linking of domestic mechanisms, improving fungibility and efficiency38 Climate Change Expert Group
  • Overview  The problem and how to solve it  The UN climate talks: past and present  Implications for business: market mechanisms under the UNFCCC  Looking forward: what role for the UNFCCC?39 Climate Change Expert Group
  • In Conclusion….. EuropeAid UNFCCC Mitigation action International co-operation40 Climate Change Expert Group
  • So what has the UNFCCC achieved in practice? (1) We know in intricate detail what we’re dealing with: IPCC on science and ! country-level inventories and reporting It has brought the world’s biggest collective problem to the top of the pile for many governments It was the catalyst for international Caution: market-based carbon pricing. Would we Subjective have the EU ETS or Australia scheme opinion without it?41 Climate Change Expert Group
  • So what has the UNFCCC achieved in practice? (1)  Through the CDM, it brought emissions accounting to industry in developing countries  It has formalised the concept of climate-finance and provision of support to the poorest, and established the Green Climate Fund ! Caution: Subjective opinion42 Climate Change Expert Group
  • And what has the UNFCCC NOT achieved? Can we identify an impact on the global emissions trajectory to date? The legally-binding compliance system of Kyoto Protocol was arguably ineffective – countries complied when they wanted to It has not yet delivered an instrument that is applicable to all, with a modern view of CBDR ! Caution: It has not yet achieved a scaled-up carbon Subjective market under UNFCCC governance opinion The multilateral process is vulnerable to political blockading and brinkmanship43 Climate Change Expert Group
  • Why we still need the UNFCCC  This is a collective-action problem and we need a collective-action solution at the heart of it  Even without top-down targets and timetables, a multilateral agreement provides transparency, scrutiny and international peer-pressure on domestic policy- making  Visibility of the international process provides democratic leverage domestically  International linking of market approaches remains a cost-effective ideal, and UNFCCC can act as a standard- setter to facilitate that goal  Funding adaptation and protecting the most vulnerable44 Climate Change Expert Group
  • And also the Lady Macbeth defence “Out damn’d spot!” Even if major countries would prefer the UNFCCC process to end, nobody wants the blood on their hands45 Climate Change Expert Group
  • Finally...  The United Nations process can be seen as simultaneously the height of diplomatic civilisation and the depth of bureaucratic quagmire  Emissions mitigation is driven by domestic legislation and regulation: the UNFCCC can continue to act as a means to facilitate domestic policy progress – not as the end in itself46 Climate Change Expert Group
  • Thank you andrew.prag@oecd.org www.oecd.org/env/cc/ccxg47 Climate Change Expert Group
  • Extra slides48 Climate Change Expert Group
  • Design elements of market mechanisms Trading system Crediting mechanism Foundations Coverage, caps, Foundations Enforcement and non-compliance allocation/auction etc Eligibility, crediting Principles and objectives baseline/additionality, etc Principles and objectives Rules on use of credits Adherence to rules Nuts and bolts Nuts and bolts Trading periods, Crediting periods, monitoring/reporting, monitoring/ reporting, registry, unit issuance, etc registry, unit issuance, etc Verification Verification Including accreditation of Incl. accreditation of 3rd 3rd party verifiers party verifiers/validators49 Climate Change Expert Group
  • Which elements for standards? ◊ More politically-sensitive areas, Foundations particular to national circumstances ◊ Examples of design agreements ◊ More technical aspects conducive to Nuts and standards bolts ◊ Monitoring standards, registry systems ◊ Wide experience with third party Verification verification and accreditation ◊ Fairly comprehensive ISO standards ◊ Highly specific to jurisdictions Enforcement ◊ Good practice guidelines and50 Climate Change Expert Group but is it enough ? transparency,
  • Doha decisions on Kyoto Protocol  The second (final) commitment period was formalised for 1 Jan 2013  Compromise to limit the “hot-air” threat – and “hidden” clause preventing very weak targets to 2020  Political statements that major buyers will not buy pre-2013 AAUs to meet 2020 targets - but not likely to improve demand for credits  KP open to units from a new UNFCCC market mechanism  Confusing language on use of units (including CERs) by “opt out” developed countries – can Japan and New Zealand receive post-2012 CERs?51 Climate Change Expert Group
  • Annex I Parties (including those without emission targets in the second commitment period) may participate in existing and new CDM projects and may receive CERs forwarded from the CDM registry to accounts in their national registry that are issued in respect of emission reductions achieved by CDM projects in the second commitment period.52 Climate Change Expert Group