Protests called a Global Day of Action, a march for action on climate change, in Durban, South Africa, on December 3, 2011. (Photo by: tcktcktck, Global Campaign for Climate Action)

By Climatico Contributor: Shira Honig

With the Durban climate change negotiations barely a week old, key countries are drawing their “red line” positions in the sand.

On one side of the line, where the Group of 77 (G77) + China and other developing countries firmly sit, is a second commitment period under the Kyoto Protocol that continues binding targets for current country signatories after the first period expires at the end of 2012 (excluding Canada, which has announced that it is pulling out of the treaty altogether). On the other is a European Union plan for a new global agreement with binding targets for all countries beginning in 2015 and in force by 2020.

Emerging today is the news that India has rejected the EU plan for a new treaty.

Leading up to Durban, the EU said it was willing to consider an extension of the current Kyoto Protocol commitments, in exchange for a broader international agreement to begin in 2015, with emerging economies under the same binding targets as western industrialized countries. Since the first day of the negotiations, Poland, who currently holds the revolving EU presidency, has clearly stated that a “Kyoto II” could be a part of a transition to a wider, post-Kyoto agreement.

Before India announced its opposition, China had already rejected the plan, saying that a new mandate before the Bali Roadmap was complete was “too much.” China, which so far has spoken on behalf of both the G77 and the BASIC countries (Brazil, South Africa, India and China) – which has concerned some negotiators – remains firm in its opposition to binding cuts at the international level. It maintains that it is pressing ahead with ambitious national plans to cut emissions, increase energy efficiency and renewable production, and decrease deforestation.

India’s rejection of the EU plan brings the opposition level to three countries, including the United States. Like China, India maintains its current position of not committing to legally binding emissions cuts. The U.S. maintains its own position that China and India must accept legally binding cuts like other western countries. Only then would it consider a new treaty. In an interview, U.S. negotiator Jonathan Pershing deflected the issue, saying that until resistance from India and China to the EU plan abates, it is not prepared to take on legally binding obligations.

Meanwhile, in its own interviews, the EU has expressed frustration that its significant efforts to reduce emissions and provide climate finance – the most ambitious of western blocs and countries – have gone unrecognized. As in Copenhagen, where it was shut out of a final deal negotiated by the U.S. and the BASIC countries, it finds itself rejected again.

Without a move on these red-line positions from one country or another, a compromise deal is unlikely. Senior ministers and heads of state will join the negotiations on Dec. 6.

By Climatico Director: Paige Andrews

Canada takes first Fossil of the Day at COP17 (Source: Adopt a Negotiator)

On Monday, Environment Minister Peter Kent announced that Canada “will not make a second commitment to Kyoto.” In addition, Canada will no longer take steps to cut greenhouse gas emissions under the Kyoto Protocol and may begin to formally withdraw from the agreement next month. In place of the Protocol, Canada’s goal is for “a new international agreement, eventually binding, which would include all the major developed and developing emitters.”

Canada’s withdrawal from the Kyoto Protocol would make it the first nation to do so after its ratification. Although Kyoto provisions are set to expire at the end of 2012, this action on the part of Canada would demonstrate a symbolic blow to the UN climate process which has already been weakened by Party divisions.

The fate of Kyoto, the only legally binding accord that specifies reductions in greenhouse gases, has proven to be the source of much tension at the annual climate talks taking place through next week in Durban, South Africa.

Canada’s announcement angered poor nations who say that rich nations are reneging on pledges made when the protocol was signed 14 years ago.

“For countries that are historically responsible for the problem to explicitly back out would undermine the process and the credibility of what we are trying to do,” stated Seyni Nafo, spokesman for the Africa Group in Durban. “How are we to going to ask India and China to do more when Canada is saying, ‘OK, we’re checking out of the Kyoto Protocol?”

Since the election of Conservative Stephen Harper as Canada’s Prime Minister in 2006, Canada’s government has demonstrated weakening support for binding emissions reductions, stating that it had no intention of complying with Kyoto and arguing that it was too ambitious and not applied fairly.

“The Canadian government is looking for every escape possible to avoid the consequences of inaction in the face of dangerous climate change and to ensure they can expand the tar sands as projected,” said Hannah McKinnon of Climate Action Network Canada.

Canada’s announcement signifies a growing trend away from any agreement that fails to include big polluters such as the United States and China. In addition to Canada’s potential withdrawal, Japan and Russia have similarly confirmed that they will not renew their commitment to Kyoto and the European Union, a consistent supporter of the Protocol, has hinted that its continued support may be conditional.

Developed countries are not alone in their hesitation about the Protocol. China, the world’s leading greenhouse gas emitter, has also refused to commit to new binding targets, arguing that it wants to see developed countries to act first and follow through with their commitments.

“If we cannot get a decision for the future of the second commitment period, the whole international system on climate change will be placed in peril,” China’s lead negotiator Su Wei told news agencies. “If the Kyoto Protocol is devoid of any further commitment period, the Kyoto Protocol itself will be dead.”

The timing of Canada’s announcement on Day 1 of COP17 in Durban has led to questions about Canada’s role and credibility in the negotiations, as well as its ability to influence international policy.  Should other countries follow Canada’s lead, the talks in Durban may result in a series of voluntary pledges, rather than a legally-binding international agreement. 

The International Conference Centre in Durban, South Africa, venue of the COP17 climate change negotiations. (Photo by: Karen Lotter/Ethekwini)

By Climatico Contributor: Shira Honig

Heading into Durban and the United Nations Climate Change Conference, otherwise known as the Seventeenth Conference of Parties (COP-17), the G77 remains committed to its long-standing position of achieving a legally binding agreement. Given the ongoing stalemate between developed and developing countries, however, many media accounts say they are unlikely to achieve it anytime soon.

Chief among its goals, the G77 is seeking a “Kyoto II,” a second commitment period that kicks in when the current commitment phase in Kyoto expires at the end of next year.

Developed countries such as the United States and Japan, meanwhile, remain committed to their own long-standing position of refusing to accept their own legally binding targets without also including binding commitments from major emerging economies such as China and India. For its part, India in recent months has consistently refused to commit to legally binding emissions cuts without more commitments from the U.S. Alongside this, several developed countries have attempted to downplay expectations for a treaty before 2015 or even 2020, angering many in the G77 who are urgently seeking international support to deal with climate change impacts.

The G77 is a loose coalition of developing countries founded in 1964 that has now grown to 132 members. Such large numbers inevitably lead to different positions within the group, with some members splintering off into other smaller regional blocs of which they may also be members, such as the Least Developed Countries (LDCs), Alliance of Small Island States (AOSIS), the Pacific Small Island Developing States (PSIDS) or the BASIC countries (Brazil, South Africa, India and China). At the same time, larger numbers mean greater negotiating strength, and the G77 maintains several collective positions, including the desire for a Kyoto II. The BASIC countries issued a joint statement early November calling for a second commitment period.  

Another of G77’s main goals, and a sticking point heading into Durban, relates to climate financing flows from developed to developing countries. The G77 is looking for progress on implementation of the Green Climate Fund, as agreed to in Cancún at COP-16 last year.

Many of its members are largely distrustful of western promises for financing, and with good reason. The rules governing development aid have long been opaque and bureaucratic, with countless requirements that developing countries generally do not have the capacity to meet. In the current round of climate negotations, at least some of what developed countries promised as “new and additional” funding through the Copenhagen Accord has not been proven to be new or additional. For example, following an announcement early November that European Union finance ministers would provide $5.5-billion in short-term funding, criticisms came from NGOs such as Oxfam, to developing country ministers, such as India’s new environment minister, Jayanthi Natarajan, who said the money was merely repackaged aid. While such criticisms are fair, today’s economic crisis in Europe – and threatening to spread far beyond – poses a critical threat to both short and long-term climate funding.

As host of COP-17, G77 member South Africa is looking for ways to minimize the ongoing rift. Its negotiators have called in Valli Moosa, former Minister of Environmental Affairs and Tourism and now the chairperson of the board of the World Wide Fund for Nature in South Africa, to advise the South African delegation and ease tensions between countries.

With its international clout, China is also seeking ways to bring parties together.  Xie Zhenhua, China’s chief negotiator whose influence was evident in the pivotal – and negotiators would say, negative – role he played in Copenhagen, is encouraging emerging economies to increase their own commitments. Xie is asking them to present national plans that may not be legally binding under Kyoto, but that at least show they are serious about reducing emissions at the national level. It is not clear at this point whether G77 members will buy into the plan, or whether it will satisfy the U.S. and other developed countries as being enough.  

Perhaps unintentionally, Xie’s idea is similar to those of U.S. chief climate change envoy Todd Stern, who was reported as saying this past spring in New York that internationally binding emissions caps are not necessary if you have national laws and regulations instead. In fact, he added, making obligations legally binding creates a perverse incentive that “diminish the ambition of what countries are proposing to do.” No doubt he was thinking of China as he made his statement.

The G77 would certainly take issue with Stern’s statement that a treaty is not necessary for targets, or for that matter, for financing implementation. Nevertheless, if a binding outcome does not emerge from Durban, they will need to seek ways to work around this deficit.

China will spend 2 trillion Yuan ($313 billion) on developing green energy and reducing carbon emissions over the next five years. Quingdao Huaweu Wind Farm (Image by: Land Rover Our Planet)

China’s emissions have risen sharply in recent years due to rapid industrialisation, fuelled chiefly by coal burning. In terms of national emissions, it has overtaken the US; its per-capita emissions are currently much lower, but rising quickly.

The European Commission’s Joint Research Centre (JRC) has recently put China’s annual emissions at 6.8 tonnes of carbon dioxide per person. This is still much lower than 16.9 tonnes for the US (some analysts put this figure even higher), but rising quickly; indeed, Chinese emission figures have tripled since 1990.

“Due to its rapid economic development, per capita emissions in China are quickly approaching levels common in the industrialised countries of the Annex I group under the Kyoto Protocol, the report notes. “In fact, present CO₂ emissions per person in China are now equal to those of Italy, higher than France, but still smaller than that of Germany”.

“If the current trends in emissions by China and the industrialised countries including the USA would continue for another seven years, China will overtake the USA by 2017 as highest per capita emitter among the 25 largest emitting countries”.

Xie Zhenhua, vice chair of the National Development and Reform Commission, said that to let emissions rise that high would be a “disaster for the world”.

Xie was speaking during a visit to the UK that explored co-operation on clean energy and climate issues; the trip also included signing a Memorandum of Understanding with UK Energy and Climate Secretary Chris Huhne on areas for joint research.

“During the Twelfth Five-Year Plan period, the Chinese government will boost low-carbon development from ten perspectives,” notes Xie. China will promote circular economy projects, establishing 100 demonstration bases for resource comprehensive utilization, and additionally launch low carbon pilot programs in five provinces and eight cities.

China will spend 2 trillion Yuan ($313 billion) on developing green energy and reducing carbon emissions over the next five years, with a view to cutting carbon intensity (the CO₂ output for each unit of GDP growth) by 16 percent compared with 2010 levels.

Whether a Chinese peak after 2020 would be able to help constrain climate change within limits often regarded as “safe” is another question. A recent study published in the journal Nature Climate Change showed that “if global emissions do not peak and begin to fall by 2020, keeping the global average temperature rise since pre-industrial times below 2C will be difficult”.

Is this anything new?

In the run-up to the negotiation talks in Copenhagen in December 2009, China announced that it would cut emissions of carbon relative to economic growth by 40% to 45% by 2020 compared with 2005 levels.

These recent targets are less than the country achieved in the previous 15 years, note some observers concerned by China’s apparent lack of ambition. Indeed, Xie acknowledged that China achieved energy conservation gains of 47% between 1990 and 2005. But he insisted, “the lower headline figure of the new target masked the fact that it is harder to achieve because all the low-hanging fruit has already been picked”.

What does this mean for future negotiations?

China came in for heavy international criticism over its alleged intransigence at the Copenhagen climate talks in December 2009, with many arguing that Beijing was determined to scupper efforts to set tough, specific targets.

China has consistently resisted emissions targets that are ”internationally binding or subject to international verification”. Xie notes, however, that, over the last five years, China has a better record of meeting ambitious domestic targets than many countries with internationally binding commitments have managed.

In previous negotiation rounds, China, as a developing country, has argued that the vast majority of emissions were due to industrialisation in the developed world and that rich countries had not made significant commitments to reduce their carbon emissions. China, like many other developing countries, continues to emphasise that such emission reductions cannot come at the expense of their economic development, pointing to the historic responsibility of the industrialised West to provide further assistance in shifting developing countries onto a low-carbon growth path.  

Recognising the dangers of rising carbon intensity and keen to explore potential avenues of cooperation with the West, China has turned a corner. Will China now recognise its enormous (and growing) responsibility to cooperate with the developed countries in ratifying international agreements? China’s increasing economic development will mean it will be a key player in the future, both in terms of recognising the legitimacy of the agreement (as it races to be the largest economy in the world, no “global agreement” could exclude it), and in terms of achieving any significant emission reductions. How this plays out in Durban in December 2011 will be paramount. 

Disputed land (Source: Achmad Rabin Taim)

Clean Development Mechanism (CDM) credits have been receiving plenty of bad press, with the latest being reports of human rights abuses committed in Honduras over the ownership of credit-producing land. This is particularly serious as the CDM has been set up to feed into the EU ETS, which means that CDM credits find their way into the EU emissions market. Trading in credits whose origin is both legally questionable and ethically suspect does not bode well for the environmental integrity of the EU ETS.

The CDM

EU ETS regulated installations are allowed to use a set proportion of emissions reduction credits generated from CDM projects in developing countries. This is permitted as a way of linking the Kyoto Protocol mechanisms to the EU ETS. In exchange for one CDM credit a Member State has to issue and surrender one emissions allowance and then cancel the credit, which cannot itself be traded within the EU ETS. There are legislative limits on the levels of CDM credits that can be swapped for allowances.

Earning credits in this manner has proved a popular way of fulfilling EU ETS obligations due to the proliferation of CDM projects across the developing world. There are currently over 3,000 CDM projects registered with the UN.

Who owns the land?

CDM projects involve land which is owned by UN approved entities that are in charge of generating the credits. This is the case in Honduras, where the projects under fire have entailed the production of palm oil. Local farmers are protesting against the palm oil plantations and claim that they have been wrongfully evicted from their land so that the CDM projects can go ahead. There are widespread reports of worrying levels of violence against those who are trying to recover their land.

This dire situation highlights one of the key problems with the CDM. How can the ownership of the CDM credits be secure when the ownership of the credit-generating land itself has been thrown into doubt? Many of the developing countries which host these types of projects lack an adequate land registration system whereby ownership can be adequately recorded and subsequently protected. This leads to situations like the present one in Honduras, where land disputes between parties with competing claims can degenerate into something much more sinister.

Banning the “bad” CDM credits?

The CDM has brought the inadequacy of land ownership protection present in these developing legal systems into the EU’s own back yard. Not only does this render the ownership of the credits themselves disputed, but it also brings with it the allegation that the system is being built on unethical practices. While the EU is in no way responsible for these unfortunate events, the controversy is stretching to the EU ETS due to the reliance of regulated installations on CDM credits to earn emissions allowances.

There are demands from within the EU to ban those CDM credits which have been tainted by human rights abuse allegations. It is rightly perceived that the EU ETS cannot be associated with grave breaches of this nature. This kind of ban on suspect credits has happened before with Chinese CDM projects which were said to lack any environmental integrity. The projects in question involved producing a noxious gas (HCFC-22) simply to burn its equally noxious output (HFC-23) and thereby earn credits.

Increased vigilance is needed

The controversy that surrounds the CDM is not fading away very easily. This is because the UN’s monitoring powers in respect of projects which are spread worldwide are not sufficiently strong to prevent the system from being abused. The EU ETS is suffering the consequences, which may well add to the volatility of the emissions market. The EU needs to be especially vigilant. Having to ban a new type of offending credit on a regular basis is cumbersome, but the more sweeping alternative of seriously questioning the CDM has not been seriously put on the table so far.

Water Pollution in China (Photo by Bert van Dijk)

It has taken a long time in China, but official policies finally aim to achieve a sustainable balance between environmental protection and economic growth in significant ways. Developments over the last several weeks and months include a draft proposal for new rules on fines for pollution, discussions of an environmental tax and increased environmental spending, new environmental standards on copper scrap imports, and the release last March of China’s 12^th Five-Year-Plan, which puts environmental concerns front and center, and seeks to slow down the astronomic growth so damaging to the country in the last two decades.

The question, however, is whether these policies will achieve that balance. Together, they present a mixed view: on one hand, the 12^th Five-Year-Plan clearly shows environmental protection and renewable technology development have become high strategic goals, which will attract more funding and attention. At the same time, they remain couched within China’s myriad institutional challenges – most of which these policies are unlikely to solve.

New Environmental Standards and the Challenge of Legal Enforcement

Many rules on environmental standards currently exist in China, but not nearly as many are adequately enforced. The copper rules require certificates to indicate they are not hazardous. Since they were established in August, they have been piling up in ports as Chinese customs cracks down. Imports at specific locations, however, are much easier to address than widespread environmental non-compliance.

Enforcement of pollution in China is challenging for a variety of reasons, most of them institutional: data and monitoring challenges, budget constraints, weaknesses in the legal system, and endemic corruption at the local level. Wide geographical disparities, including differences in funding between urban and rural areas, present additional challenges.

The draft rules, if implemented, would end a longstanding weakness in Chinese environmental legislation regarding pollution time limits by introducing daily fines. Currently, time limits on pollution are undefined (or arbitrarily chosen by the central government), and the fine remains at a fixed rate rather than marginally increasing, as it does under the U.S. Clean Air Act, where fines can be issued of up to $25,000 per day for a maximum of 30 days. This can result in massive overall fines, a significant pollution deterrent.

The draft rules also seeks to address two other weaknesses in Chinese environmental law: a lack of transparency, and a lack of public participation and public interest litigation. Without the ability for the public to litigate against pollution, there is no incentive for state-owned enterprises to comply with the law, and without procedural rights, the text of a law – no matter how strong – has little meaning. Currently in China, with lawsuits rarely accepted and with environmental law a relatively new field, only a handful of all cases in the country are environmentally related. Without a strong legal system, however, even an official endorsement can only go so far.

These rules, combined with increased environmental spending, including increases in annual budgets, might be significant, depending on precisely what China plans to spend the money on. While what those plans are is not yet clear, the 12^th Five-Year Plan offers some guidance in this respect.

The 12^th Five-Year-Plan Emphasizes the Environment, but Implementation is Uncertain

China’s 12^th Five-Year-Plan contains much more emphasis on environmental policies than previous plans. It promises to invest massively in plug-in hybrid electric and pure electric vehicles; develop increased wind, hydro, nuclear, solar, biomass and geothermal energy, to the point where alternative energies reach 11.4% of total energy consumption by 2015, up from 8.3% in 2010; decrease water consumption by 30%; and increase forest cover by 1.3%. Many of these indicators, including its plan to reduce energy consumption and emissions per unit of GDP, it views as binding (as opposed to merely expected). Also notable is its plan to implement  cap and trade pilot programs, as well as its attention to the implementation of the 2008 Circular Economy Promotion Law, which defines the “circular economy” as “a generic term for the reducing, reusing and recycling activities conducted in the process of production, circulation and consumption.” Its goals are ambitious: to promote recycling at all levels, including the recycling of industrial waste, as well as to encourage low carbon and even zero emissions models.

Some of these policies, particularly in the investments into renewable energies, would be global game-changers if implemented successfully. Some researchers, however, note that even if China succeeds only halfway, the changes to global clean energy technology would be significant, with the country becoming  a price setter.

Implementation, however, remains uncertain. Research since March indicates significant challenges to both its lofty environmental and general policy goals, with one researcher pointing out that pollution targets are not enough without more emphasis on data collection. As is generally the case with China’s five year plans, implementation details are not addressed. Rather, those are found in more detailed policy documents drafted in between these plans, and are left to a large degree for local authorities. Yet local environmental protection bureaus face many challenges, not least being surrounded by (and often involved in) corruption within local enterprises and governments. For this and other reasons that are too lengthy to describe here, vague intentions to “strengthen the supervisions of law enforcement,” and other similar statements, remain an open question.

In addition, China’s central government has historically treated environmental policy with as much of a heavy hand as it treats its economy: for example, by its use of short-term campaigns that may close thousands of local polluting companies, but ultimately fail to address systemic institutional challenges; or by its clampdowns on protesters and arrests of high profile environmental activists. Most recently, it imposed electricity brown-outs in late 2010 in its push to meet energy intensity targets.

Without a doubt, China is clearly focused on a sustainable direction. It may well be that that focus will lead the world, as in the case of renewable energy. Without addressing structural challenges, however, sustainability is not guaranteed.

Easier to lose than land (Source: Salisbury Area Plaques)

In anticipation of the centralised European registry for the EU ETS the Commission has turned its attention to the legal issues surrounding the traceability of stolen emissions allowances. The approach taken is deferential to the national laws of individual Member States rather than providing a harmonised EU-wide rule. However, the Commission’s proposals have done little to address the risks faced by market participants if found to be unwittingly holding stolen allowances. This is not particularly helpful for the overall health of the emissions market.

Identification and recording of emissions allowances

Much like a land registration system, each emissions allowance within the EU ETS is currently identified by a unique serial number (called a unique unit identification code in the EU ETS registry regulation) and is recorded in one of the national Member State registers, depending on which Member State it has been allocated to. The Community Independent Transaction Log (CITL) supervises and verifies all transfers of allowances between national registries to ensure that they comply with the EU ETS rules.

Phase III of the EU ETS (commencing in 2013) will see a centralisation of the registry system, with all emissions transactions being carried out through a single EU registry, the European Union Transaction Log (EUTL). The central registry will be operated by the European Commission and will replace the individual Member State registries.

Theft of emissions allowances

Since the start of 2011 the emissions market has witnessed several incidents of allowances being stolen from national registries. Eastern European Member States in particular were affected, with millions of euros’ worth of allowances being lost when fraudsters broke into the electronic registry systems. This brought the emissions spot market to a halt in January 2011.

A substantial number of these allowances have not been recovered to this day. This is in spite of each allowance having a serial number, which in theory at least should make its movement through the accounts in the registries easily traceable. However, the approach of the Commission has been to leave the recovery of stolen allowances to the legal systems of individual Member States, without attempting to draft any generally applicable rules in this respect.

Where have all the serial numbers gone?

That derogating to individual Member States represents official policy in this area has been confirmed recently by the Commission’s intention to amend the EU ETS registry regulation to make serial numbers confidential. This means that any stolen allowances will no longer be capable of identification; the responsibility for holding them rests with their owner at any particular time.

The Commission’s proposal is that unknowing purchasers of stolen allowances should be allowed to keep them, while the interpretation of “purchaser in good faith” should be left to the national laws of each Member State. However, Member States have different rules regarding the tracing of stolen property. Emissions market participants would be left uncertain as to what they are holding in their registry accounts. They would no longer be able to identify which allowances are stolen, and would also be potentially liable to losing them if the law of a particular Member State stipulated that the allowances should be returned to their original owner.

Effects on the market

This level of uncertainty does not bode well for the emissions market and could seriously undermine the viability of the EU ETS. There have already been objections to the Commission’s proposal not to publish serial numbers. Coupled with this are the recent closures by some financial institutions of their emissions trading desks, amid fears that the market is too unstable to merit involvement. While the Commission’s attempts to address the security issues in the EU ETS are in themselves commendable, the approach has not so far elicited the desired response from the market.

Editorial by Guest Contributor: Alan Andrews, ClientEarth

London traffic (Image by: Andrew Nesbitt)

On the 29^th September the government submitted its official report to the European Commission on levels of air pollution in the UK for 2010. It makes for pretty grim reading. The report confirms that 40 of the 43 air quality zones in the UK breached the annual limits for nitrogen dioxide. No other EU country has a higher proportion of non-compliant zones.

EU directives set legal limits on levels of harmful air pollutants in the air we breathe. One of these pollutants is nitrogen dioxide – a harmful gas emitted by burning fossil fuels. Road traffic fumes are the main source of this pollutant, with emissions from domestic boilers and industry also playing a significant part.

The situation is particularly bad in London, where an area of 91 km² breaches the annual limit, exposing nearly 700,000 people to illegal levels of air pollution. The air pollution monitoring station at Marylebone Road, just opposite Madame Tussauds, recorded over 500 breaches of a short term hourly limit. However, by not including data from other worse sites in the official report, the government are hiding the true severity of London’s air quality crisis. Data from the excellent London Air Quality Network, run by King’s College London, show that Brixton Road recorded a staggering 2,683 breaches of the hourly limit in 2010, closely followed by Putney High Street, with 2,481.

For those of us who work in the field of air quality these figures come as no surprise. In fact, ClientEarth threatened the government with legal action in November 2010 over breaches of the limits in London. The government assured us that it was in the process of producing air quality plans for each zone which would show how the limits would be achieved by 2015 at the latest. However, when these plans were eventually published for public consultation in June this year, they revealed that for 17 zones, the limits would not be achieved until well after 2015. In the case of London, it could be as late as 2025.

ClientEarth therefore issued judicial review proceedings against the Secretary of State for Environment, Food and Rural Affairs. We are calling on the High Court to order Defra to draw up new plans which will achieve compliance by 2015, as required by law. On the 16^th September the High Court gave us permission to proceed, and we expect a full one-day hearing before Christmas.

So why are we so concerned by nitrogen dioxide? First and foremost, this is a health issue. In high concentrations nitrogen dioxide can irritate the eyes, nose and throat and cause shortness of breath. But for children, older people, or those with pre-existing health conditions, the effects can be far more damaging. A study published last week concluded that breathing in high concentrations of traffic fumes, including nitrogen dioxide, can trigger heart attacks. Another recent study has shown that living near busy, polluted roads could be responsible for some 15-30 per cent of all new cases of asthma in children; and of diseases such as bronchitis, emphysema and heart disease in adults over 65.

The European Commission will almost certainly launch enforcement proceedings against the UK for these breaches, probably in early 2012. Facing legal action at home and from Europe, the government has to start taking this problem seriously.

Alan Andrews is a health and environment lawyer for ClientEarth, an organisation of activist lawyers committed to securing a healthy planet.

This article originally appeared on ClientEarth and has been reprinted with permission. See the article in its original form.

Who will regulate? (Source: Sébastien Bertrand)

The EU ETS remains high on the UK Parliament agenda following a recent submission by Barclays Capital calling for an independent and separate regulator for the regime. The submission provides a much needed focus on some of the key peculiarities of the EU ETS which have been known to cause tension in the emissions market. In particular, the wide ambit of the EU ETS, open as it is to anyone who wishes to trade in emissions allowances (EUAs), is a potential cause for concern due to the inherent risks of market manipulation.

Who regulates?

The body currently in charge of managing the EU ETS is the European Commission, specifically the Directorate-General for Climate Action (DG CLIMA). Besides being responsible for developing and implementing climate change policy at the EU and international levels, DG CLIMA has the added task of supervising the workings of the EU emissions market.

What is somewhat surprising is the lack of express involvement of another Commission department that would logically have the requisite expertise in this area, namely DG Internal Market. After all, the bulk of the emissions market is made up not of spot trading, but rather of derivatives (specifically forwards) trading based on the EUAs as underlying assets, as this helps participants hedge against possible price volatility. The flexibility and openness of the emissions market has attracted large swathes of financial entities that trade in EUAs and EUA-based instruments for speculatory reasons rather than for compliance with the EU ETS.

The EU ETS – beyond environmental protection

The creation of such extensive emissions trading has taken the EU ETS from the purely environmental and regulatory sphere which it was initially intended to inhabit and placed it firmly in the realm of the financial markets. However, unlike other financial markets, the emissions market is not fully regulated as it is open to entities which are neither under EU ETS compliance obligations nor regulated as financial firms, notably under the Markets in Financial Instruments Directive (MiFID).

The risk of the Commission losing its grip over emissions trading has materialised on a number of occasions, with instances of VAT fraud and theft of EUAs from Member States’ national registries crippling the market. This is particularly damaging to investor confidence as it seriously undermines the credibility of emissions trading.

A sui generis regime?

This level of trouble has not been seen on any other commodities markets, and may suggest that emissions trading is in a class of its own and may require special treatment. The Barclays Capital submission suggests that participation in the market should be restricted to EU ETS and MiFID regulated firms, and that a separate regulator should be appointed that is independent of policymaking bodies. The latter measure would ensure that no public policy-based intervention would occur in respect of emissions prices. This point is particularly interesting given recent UK proposals to introduce a carbon price floor (see earlier Climatico post).

A special regulator in charge of the EU ETS would dilute DG CLIMA’s control over emissions trading as a tool of environmental protection as this goal would presumably have to be balanced against the merits of developing and maintaining a viable market in emissions in its own right. This may be a healthy outcome as it could enable the new regulator to harness the expertise of the EU financial regulation regime while bearing in mind that the EU ETS is a creature of public policy, and as such should pursue the environmental goal of emissions reductions. Whether the EU Commission has the resources or willingness to fashion this hybrid regulatory regime is of course another question.

Rimba Raya Project in Rapid Decline (Source: Timothy G. Laman, National Geographic)

Indonesia’s flagship Rimba Raya REDD project was registered this year under one of the Voluntary Carbon Standard’s REDD methodologies, aiming to preserve “91,215 hectares of tropical peat swamp forest,” equivalent to an emissions reduction of 104,886,254 tonnes of CO₂e over the crediting period of 30 years, according to the registration documents.

The project has long been an exemplar of early action on REDD, hoping to bring the field in to the carbon markets. Indeed many expected it to be the first to issue REDD based carbon credits in the voluntary markets, but this title was taken by the Kenya Kasigau Corridor Project earlier this year. Despite the early success, a recent report by Reuters outlines how hopes for the Rimba Raya project have declined rapidly over the course of the past year.

Back-pedalling and contradictions

At the heart of the controversy is a decision by the Indonesian Ministry of Forestry to cut the project area in just over half, and grant development rights to a palm oil company for some, if not all, of the newly available land, resulting in the economic viability of the project  now coming under review.

The reason for the decision is, unsurprisingly, unclear, but interviews by Reuters suggest that land ownership and competing potential uses of land were root causes for the sudden reversal. Indeed Reuters reports that the decree allocating the project’s land area to the REDD project developers was never formally signed by a Minister, allowing the original claimants – PT Best, a palm oil company – the development rights of the land that was originally allocated to them.

Most of those involved seem to be genuinely startled by the sudden turnaround of the government, particularly given the decision’s seeming opposition to the government’s purported stance. It appears to highlight deep divisions between the national government and the civil service, or perhaps even amongst ministers themselves, on the level of action needed to stop deforestation.

It all comes down to price

More importantly, however, it draws attention to the magnitude of the political risk faced by those investing in a new, politically unstable market, and demonstrates with painstaking lucidity the potential losses facing an investor, should a project either not sit well with the government or should there be more profitable, competing uses of the land. And herein lies the fundamental problem: the existence of more profitable uses for land often result in REDD offset credits being unable to compete with the alternative uses of land, since profits are dependent on a low carbon price.

The number of participants, presence of willing buyers and the involvement of Gazprom all seem to suggest that, over the 30 year crediting period, the project is likely to be profitable. But the Ministry of Forestry seems to disagree, exemplified by the Secretary-General of the Ministry of Forestry, asking “who will pay for the dream of Rimba Raya? Who will pay? Nobody, sir!” Although a legitimate question to ask, this apparent rationale does beg the question of how the government expects the project to pay for itself if it is slashed in half.

Nevertheless, it seems that the Rimba Raya project may have fallen victim to the whims of political infighting. Irrespective of the reason, the presence of an economic case that argues against the implementation of a REDD project will never sit well with governments handing out permits. Perhaps more importantly, it allows any number of potentially illegitimate reasons for derailing the halt of deforestation to mask behind this inconvenient – albeit legitimate – concern.

Finally, turning back to the price, it is worth reiterating an obvious but important point: if the carbon price were at a level that demonstrates clear economic viability for REDD projects over and above alternative environmentally destructive uses of the land, these kind of problems would be far less likely to arise in the first place.