The Bali conference – no time to lose!
Written for The Times (climate change supplement), 28 March 2007, by Oliver Tickell..
Bali – the key issues
For its faults the Kyoto Protocol will be missed once it has gone – after it expires at the end of 2012 there is nothing to replace it. Hence the Climate Convention conference now under way in Bali, Indonesia, where delegates from all over the world are negotiating over its successor – if there is to be one at all. It’s won’t be easy to reach agreement, let alone one that will deliver reductions in greenhouse gas emissions on the necessary scale of 80 percent or so by 2050, and apportion the burdens in a way that keep everyone happy. Here are some of the key issues that delegates are already struggling with …
Bringing in developing countries. Under the Kyoto Protocol it is only the ‘Annex 1’ industrialized countries that have targets to reduce their greenhouse gas emissions. Developing countries including many major emitters – such as China, India, Indonesia, Brazil, Mexico, South Africa – have no targets at all. And these are the very countries where emissions are growing fastest, especially China and India. Indeed China has now overtaken the USA as the world’s biggest emitter of carbon dioxide, even though its per capita emissions are far lower. But if these developing countries are to be brought into a new agreement, how is it to be done? Would they all be brought in, or just some of them. What kind of targets would they be prepared to accept? Would they want the existing Annex 1 industrialized countries to pick up all or part of the bill?
Deforestation. Greenhouse gas emissions from deforestation amount to some 17.5 percent of the annual total – more than the entire global transport sector, which contributes only about 13.1 percent. Clearly any effective climate agreement will have to reduce emissions from deforestation, taking place mainly in the developing world. But how? In negotiating the Kyoto Protocol the issue was so contentious that it was left out altogether. Richly forested developing countries insist on their right to clear their forests to make way for farms, ranches and plantations, arguing that European countries cleared most of their forests centuries ago and they have a right to do the same. One approach is to reward countries for ‘reduced emissions from deforestation and degradation’ (REDD). This could mean taking a baseline of deforestation proceeding at its historic rate, and converting any reduction in that rate of deforestation into ’emission reductions’ which could then be traded on carbon markets. But this would give the biggest rewards to the countries that are deforesting fastest, and encourage countries that are now looking after their forests to cut them down to establish a more advantageous baseline. Moreover this carbon-trading approach would depend on Annex 1 countries failing to meet their own emissions reduction targets – when we need both industrial and deforestation emissions to reduce, not one or other.
Shipping and aviation. Greenhouse gas emissions from shipping and aviation are currently contributing about 8 percent of the greenhouse gases entering the atmosphere: 1.2Gt of CO2 from shipping, 0.7Gt from aviation, and the equivalent of another 0.7Gt -1.4Gt of CO2 from other greenhouse gases emitted by high-flying aircraft. These emissions are fast growing, and are expected to rise by 50 percent or more by 2020. Yet they are exempt from the Kyoto Protocol. Any effective new climate agreement will need to tackle these emissions, but few ideas are on the table as to how to bring them into the regulatory framework. One problem is that most of these emissions arise from international transport, so which country should be responsible for them? And how to account for the shipping and aviation emissions associated with developing countries who have no targets to meet under the Kyoto Protocol?
Flexibility mechanisms. (see below) The Kyoto Protocol’s flexibility mechanisms represent a real conundrum. On the one hand they have given rise to the global ‘carbon trading’ sector, which in 1996 traded securities worth over $20 billion – a figure set to multiply during the Protocol’s ‘compliance period’ between 2008 and 2012 – the years in which countries have to meet their targets, or buy in carbon credits such as CERs to make up the shortfall. The creation of these global carbon markets is arguably the Kyoto Protocol’s biggest achievement. But the CDM has also been harshly criticized for its economic inefficiency and the fact that many of the CERs are less than completely credible. Certainly most of the CERs coming to market arise from the very countries where emissions are growing fastest. Of course these emissions might have grown faster still without the CDM – but we can’t tell. Economists and NGOs are calling for a total reform of the flexibility mechanisms, but against them is ranged the combined might of the carbon trading sector, which knows very well which side its bread is buttered.
The USA. No new climate agreement will really mean anything unless the USA – until recently when overtaken by China the world’s biggest CO2 emitter – is on board. It failed to ratify the Kyoto Protocol and no way is George Bush’s administration going to sign up to an agreement that imposes mandatory cuts in emissions, or exempts big-hitter developing countries like China and India. This means that as far as Bali is concerned, the US government is almost irrelevant. Everyone is looking to whoever might run the next US government – the Democrats’ Hillary Clinton perhaps, or a Republican more willing to engage constructively with global warming as Arnold Schwarzenegger is already doing in California. The lack of a definitive US negotiating partner is one big reason why no definite agreement is expected to emerge from Bali.
No time to lose
A international treaties go the Kyoto Protocol has not been a great success. Its central aim is to constrain the growth of greenhouse gases in the atmosphere, and so protect the world from all the climatic instablility and sea level rises that would follow from ‘business as usual’ greenhouse gas emissions. But in reality global emissions have accelerated since it was signed with no indications of any slowdown ahead – as made clear by the Inter Governmental Panel on Climate Change in its Synthesis Report published in March.
The Protocol works by giving industrialized countries targets to reduce their emissions during the ‘compliance period’ between 2008 and 2012, averaging out at 5.2 percent below 1990 levels. The targets are unambitious, and the time scale in which to achieve them leisurely. Moreover to help the industrial ‘Annex 1’ countries meet their targets, they can buy in reductions in emissions achieved in other, mainly developing countries through the Protocol’s various ‘flexibility mechanisms’ [see box], so reducing compliance costs.
In spite of the undemanding obligations imposed by the Kyoto Protocol, progress has been painfully slow since it was negotiated in March 1997. It only came into force in March 2005 when, with Russia’s ratification, it cleared its legal hurdles. And even now neither Australia nor the USA – historically the world’s biggest emitter of greenhouse gases – have ratified. Australia’s new Government has now promised to ratify, but the USA will also need a change of government before stepping on board, if indeed it ever does.
When the Kyoto Protocol expires at the end of 2012 we will have no ‘comfort zone’ to accommodate further such delays before putting a new agreement in place. Indeed the very ineffectiveness of the Kyoto Protocol has given us less time to play with now. The scientific concensus – reflected in IPCC reports – is that to have a good chance of avoiding serious climatic disruption the world needs to reduce emissions by 80 percent by 2050, stabilizing CO2 concentrations at about 450 parts per million (ppm), compared to 379 ppm today. And in order to achieve that, according to the International Energy Agency’s Word Energy Report 2007, the world’s greenhouse gas emissions need to reach their peak ideally in 2012, and in any case no later than 2015, then fall steeply.
The world clearly cannot afford to advance on the same ‘Crisis? What crisis?’ pace as it did with the Kyoto Protocol. That would imply that there would be no new agreement in force until 2015 or so, with emissions targets to be reached only some years later, say in 2020. By then the 450ppm target will be absolutely unachievable, and hopes of keeping future temperature increases, climate disruption and sea level rises utterly dashed. As the IEA report points out, “the primary scarcity facing the planet is not of natural resources nor money, but time”.
A key aspect of the Kyoto Protocol is that ‘Annex 1’ industrialized countries who are failing to meet their greenhouse gas reduction targets at home can resort to its ‘flexibility mechanisms’ – which allow them to buy in various forms of carbon credits from elsewhere. By far the most important is the Clean Development Mechanism (CDM), which produces trade-able carbon instruments known as Certified Emissions Reductions (CERs), each one of which represents one tonne of carbon dioxide (CO2).
Typically a company will identify an opportunity to reduce emissions of CO2 (or another greenhouse gas) in a developing country at a cost lower than the market price of CERs. Then they will finance a project to bring about those reductions, have the project approved by the Climate Convention secretariat, and sell the CERs to a country that is set to miss its targets, or to an investor. Examples of CDM projects include: reducing emissions of powerful industrial greenhouse gases like HFC-23 from chemical factories; improving the efficiency of power stations; reducing emissions of methane from large scale livestock farms; or improving process efficiency in manufacturing industry.
One important criticism of the CDM is that it is economically inefficient. For example, most of the CERs produced to date arise from abating HFC-23 mainly in Chinese chemical factories. The abatement has been achieved for a total technology investment estimated at $100 million, but has produced CERs worth $4.7 billion – and that’s what taxpayers in Annex 1 countries who miss their targets will have to pay. That amounts to $4.6 billion wasted – money desperately needed to tackle the problems of global warming.
Another problem is that the reductions giving rise to CERs take place relative to a theoretical baseline – so you can’t prove that the reductions would not have taken place anyway. To consider the example of CERs from abating HFC-23 emissions, China could perfectly well have regulated HFC-23 emissions using anti-pollution laws – and would almost certainly have been paid the $100 million cost from the Global Environment Facility, run by the World Bank. But the huge financial gains to be made through the CDM – much of it ending up with the Chinese government – would hardly encourage that regulatory approach.
The second mechanism is Joint Implementation (JI), which is similar to the CDM but operates between Annex 1 countries – based on the idea that emissions can generally be reduced more cheaply in Eastern than in Western Europe. The third is Emissions Trading, which allows Annex 1 countries under-shooting their emissions targets to sell their unused emissions rights (widely known as ‘hot air’) to other Annex 1 countries. In practice this applies almost entirely to Russia and Ukraine which have some 600 Mt (million tonnes) of hot air to sell, worth some $6 billion at $10 / tCO2